What Are the Benefits of Chapter 13 in Louisville Kentucky?

Everything a Chapter 7 can do a Chapter 13 Bankruptcy in Louisville can do better. Plus a Chapter 13 has certain benefits and tools a Chapter 7 doesn’t.  But there is a cost in that you commit all of your disposable income for 3-5 years to do what a Chapter 7 can’t. These benefits include:

Chapter 13 bankruptcy in Louisville

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  • Protect property when you own too much. Assets that would have been lost in a Chapter 7 can be kept in a Chapter 13;
  • Eliminate or manage more types of debts than a 7.  Income taxes, domestic support or student loans can be repaid or managed;
  • Repay priority debts such as child support or income taxes sometimes without penalties or interest.  Priority debts are repaid at the expense of unsecured debts;
  • Provide bankruptcy protection when a Chapter 7 is not possible.  For example when the Debtor finished a Chapter 7 less than 8 years ago.

Chapter 13 Benefits for Mortgages

A Chapter 13 can challenge Mortgage claims and fees. Strip a second mortgage for your primary residence. You can catch up a mortgage over time up to 5 years.   Sometimes you can reduce or modify the secured amount of a mortgage for commercial, vacation and second homes.

Chapter 13 Benefits for Auto loans

A Chapter 13 will stretch out car loan repayment.  You can fully protect a cosigner.  It can lower the interest rate of an auto.  You can also reduce the principle amount owed on a car loan if

  • The loan was not solely for buying the auto or
  • The loan is over 910 days old or
  • The vehicle is used commercially

Chapter 13 Costs

A Chapter13 filing fee is $310.00.  Additional mailing costs makes us ask for 335 so the plan can be mailed to the creditors. If the case is being filed to stop a foreclosure sale, the court requests us to collect the first couple of plan payments.  This helps to prove the plan is feasible if the debtor is paying payments into the plan.

The court pays the attorney fees from payments that are made into the plan.  You pay the same amount to have the best or the worst attorney on your case.  The petition is long and difficult to prepare.  Over 90% of persons who attempt to file Chapter 13 Bankruptcy in Louisville themselves have the case dismissed.   It is hard to accurately and completely prepare the petition and plan. Half the attorneys who prepared Chapter 13 cases quit in 2005 when the law changed and required detailed petitions.

Qualifying for Chapter 13 Bankruptcy in Louisville

A Chapter 13 can actually be cheaper for a debtor to file than a Chapter 7.  A Chapter 13 may eliminate a second mortgage or car loan that the Chapter 7 does not. A Debtor must owe less than $360,475 in unsecured debt, and $1,081,400 in secured debt. People that owe over these amounts can’t file a Chapter 13 bankruptcy in Louisville and must file bankruptcy as a Chapter 7 or 11. Only about 3% of the debtors are forced to file as a Chapter 13 because of high incomes.

If a Debtor can afford to repay a significant part of his debt then he fails the means test and is required to file a Chapter 13.   If a debtor’s current monthly income is greater than the average income, the plan must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. §1322(d). But if the Debtor earns less than the average income it can be a 3 year plan

Dismissing a Chapter 13 Bankruptcy

A Debtor can always stop paying and dismiss a Chapter 13 bankruptcy.  He may want to convert it to a Chapter 7 if he cant repay later. Also hardship discharges are sometimes allowed when a debtor later cannot continue to make payments. If the plan is dismissed for the failure to make payments, you go back to owing the original debt and being unprotected. If a Debtor dismisses the Chapter 13 he may not get the automatic stay if he files another Chapter 13 later. In that case the Debtor may have to file a motion to obtain the stay.

Reasons to Choose Chapter 13 Bankruptcy in Louisville

Most Chapter 13 bankruptcy cases in Kentucky involve a foreclosure or stripping a second mortgage. If you are attempting to save your home from a foreclosure you normally want to file a Chapter 13 Bankruptcy to catch up the payments. An added bonus to filing a Chapter 13 is that if the second mortgage has NO EQUITY the Debtor may strip the second mortgage in his Chapter 13 plan and at the end of successfully completing the plan the second mortgage will be released. But there can be other reasons than a foreclosure for filing a Chapter 13 such as:

  1. When it has been less than 8 years since you last filed a Chapter 7 refer to the Chapter 7 and Chapter 13 time chart to see when you can re-file;
  2. A Chapter 13 can handle debts such as debts due to fraud, income tax debt, or student loans Chapter 7 can’t;
  3. Filing as a Chapter 13 will eliminate penalties and interest for income taxes and you may repay trust taxes;
  4. If you couldn’t otherwise keep property due to too much equity in a home you may be able to keep it in a 13.   A Chapter 13 only has to repay what the creditors would have gotten if the property was sold;

Managing Student loans with a Chapter 13 Bankruptcy

Filing a Chapter 13 will stop Student loan collections.   However, the statute of limitations stops running during a bankruptcy.  Private student loans are stopped from garnish wages or attaching property. Try to make sure it is a 0% plan or that you dismiss and refile the case before anything is paid to a private student loan creditor.  Kentucky has a 15 year statute of limitation and repaying anything to a debt restarts the waiting period.

Important Facts about Chapter 13 bankruptcy in Louisville Kentucky

Little or nothing may be paid back to unsecured debts in a Chapter 13 plan. Plans often repay 10% or less to the unsecured debts. After a Chapter 13 is filed it may be later modified or converted to a Chapter 7.  When a Chapter 13 cannot work it can be modified.  If a debtor cannot qualify immediately for a Chapter 7 they may choose to file a Chapter 13.  You may be able to convert later to a Chapter 7.  When a debtor has a medical condition and will continue to have more debts you may want to file a 13 and convert later.

If you have an average income and little in assets such as less than $45,000 in equity in your home, then you probably want to file a Chapter 7. The exemptions that allow you to keep property change from state to state. Over half of the states like Kentucky use the federal exemptions. Indiana, Florida and Texas have their own state rules. You may want to download the manual on how to file for Bankruptcy that explains step-by-step how to file bankruptcy with your lawyer.

Priority non-dischargeable debts such as income taxes, student loans or child support are repaid first in a Chapter 13, tax penalties and interest charges that accrue during the Chapter 13 can generally be discharged and only the principle on the income taxes needs to be repaid in Chapter 13 cases.