I've monitored these boards for years but never contributed. Having now completed my Chapter 13 I thought I would discuss what I've learned, what the process was like, and how it all unfolded. Maybe someone else going through this will benefit.
Background: At the ripe age of 42 I hit a financial wall. My prior divorce had left me with thousands of dollars of debt, child support costs, ect. Strike one. Strike two came in the form of my new spouse. A wonderful person who had $160K in student loans. Strike two. Then came strike three: personal and medical costs, stupid spending decisions, charging items that I should have paid cash for.......boom. When I sat down to figure out how I was going to get out of the mess me and my wife created I soon realized that it would be virtually impossible. Up to that point I had never missed a mortgage payment and was late on a CC 1x. When that 1x occurred, my credit card companies increased my interest rate to almost 30%. This is now illegal, but a few years ago it wasn't....and it tossed us over the top. We were in a hole with no way out.
I am a provider--I see it as my duty to provide for my family and to take care of our financial obligations. When I faced reality and realized that I could no longer do this, I was shattered. I was sick with anxiety and depressed. The stress on my wife and I affected our relationship and made our house tense with emotional energy. Looking at a spreadsheet one day I came to the conclusion that I needed to take responsibility for my mess, face the consequences head on, and take necessary steps to fix things. Soon thereafter I met with a lawyer, explained my situation, and filed for BK.
The Process: We had to collect all of our financial documents, including bank records, debts, and income reports. Everything. We went through our debts and assets with our attorney--it took about 3-4 hours. After listening to him explain how the process worked, how long I would be in Chp13, how much I would have to pay each month, I committed myself to making it work. We signed the papers setting into motion the process. First came the 341 meeting. Our anxiety proved unnecessary as it was painless. We then received the order that docked my pay, sending it directly to the trustee. For a short period of time we received various notices from the trustee--mostly legal notices but nothing that changed our plan. That's it. The process is fairly straight forward.
Our Plan: Chapter 13 recognizes the varying ability of individuals to pay back their debtors. They measure your ability by examining your last 6 months income against your total debt. If you make below a certain point relative to your bills, you will pay some % of your overall debt. At the end of your plan, your remaining debts will be discharged. Because I have a pretty good job and my wife works, we were to pay back 100% to our creditors--with interest on certain accounts. I have always paid back my debts so I was happy that my creditors would receive all of what I borrowed. We were put on a 60 month plan. Owing $307,000 (mortgage not included but all of those student loans included) my payment was over $5000 per month. Everything I made, including all the extra work I did plus part of my wife’s modest paycheck went to pay my Chpt13.
Our Experiences: Chapter 13 is difficult and for some people impossible. The calculations of "income," "living expenses," and what they calculate you will have left to live on after your BK payment are inaccurate. They do not give you any latitude for things that happen in life. For example, my house needed painting....my car needed expensive repairs.....my kids had college expenses......we needed clothes.....the water heater goes out.....the list is infinite but the point is, you will likely have no extra money available for extraneous living expenses. There were many times in the last 5 years that we had $50-75$ in the bank and 2 weeks before my wife would get paid. BTW, I also have two young children who eat, live, grow, and have wants and needs. We were thrust into poverty (family of four with after tax income of less than 20k/year and a mortgage...do the math). The last time I looked, about 22-30% of people successfully complete their plan payments--I have no doubt why this number is so low.
To meet my payments I took every extra job I could and never passed up the opportunity for a contract. At one level, I was fortunate to have these opportunities but at another level, it was like being an indentured servant. I never received a paycheck from my primary employers but I did receive money on the side from other (legal) work that kept us afloat. For those of you entertaining the notion of filling Chpt 13 know going in that your life is going to be Spartan for a while and that you are trading one form of economic stress for another. Know that you will have to make any number of sacrifices and that you may have to get another job, do extra work, or improvise to live and to make those payments.
Overall, I'm proud of the fact that I was able to pay off my chapter 13 and that my creditors received everything they were due. I never missed a mortgage payment and paid cash for everything. We survived.
Things to Know about Chapter 13: First, don't do anything without talking with your lawyer. Your lawyer is your voice and he/she knows the law better than you do. There are areas in 13 that are complex and that require legal evaluation. If your lawyer isn't working out, don't simply cancel your 13 payment plan....go get another lawyer.
Second, do everything in your power to make those payments and to make them on time. You do NOT want your case dismissed because the consequences are even more dire. Again, if problems arise contact your attorney.
Third, the trustee is not your friend, your counselor, or your lawyer. The trustee does not care who you are and they care nothing about your individual circumstances. Their job is to make sure your creditors get everything they are entitled to and that the legal processes are followed. Your best option is to fly under the radar with the trustee. The less they hear from you the better.
Fourth, see your plan as a series of goals. You can get on the Chapter 13 data center and see all of your account information. You can watch as your payments drive down your financial obligations. If you have vehicles on your plan, you watch as you pay them off and then rejoice when you get the title. The point is, you have to change your attitude and see 13 as a series of mini-achievements. I paid off two cars (with interest) in my plan along with those HUGE student loans--seeing that (0) in the owed column felt good.
Fifth, and relatedly, the time will come where you owe no more. Plan for it. Get a plan on how you are going to budget your money now that you have NO debt. This is the opportunity of Chapter 13--you eventually get to start clean and to rebuild. Don't go crazy, repeat the behavior that put you into this situation, and then find yourself deep in debt again. Chapter 13 taught me the hard way to be more prudent, to save, to budget, to weigh wants and needs, and to be a better home bankers.
Sixth, if you have the money to pay off your plan earlier than expected.......wait...take a deep breathe......and call your attorney. Depending on your circumstances, paying off your debt early can trigger you OWING more in your plan.
Seventh, when you file for certification of discharge having made that final payment DO NOT expect to receive your discharge immediately. When you make that last payment and file the appropriate paperwork you set the trustee in motion. They have to audit your account, file papers with the court, get approvals from the court, send you other papers, file more papers........and then one day you get your discharge. It takes time and you have no control over it.
Recommended Changes to Chapter 13: I know this won't matter but I think there are needed changes to the BK laws. Quickly, the equations used to determine how much "extra" income you will have after your payment need updated. The equations produce entirely unrealistic estimates which directly translates into very high dismissal rates. Courts should have more latitude in making these determinations. I also think there should be some incentives to help people through their plan. For instance, instead of keeping a BK on your record for 7 years why not eliminate it at 5 years. If you were on a 36 month plan, then the BK comes off your credit report two years later. If your’re on a 5 year plan, it comes off after you receive your discharge. This would at least be an incentive that would help families restore themselves. Maybe also reduce tax rates for families in chapter 13?
Overall, this was a painful experience that lasted 5 years. We made it however and we made it with our dignity intact. It was not easy but I think it was worthwhile. I now get to keep what I make, I only owe on my mortgage, and I have a relatively high income/expenditure ratio. Personally, the process was instrumental in restoring my religious faith, it has made me more aware and thus more responsible. I now have the ability and desire to better take care of my family and others. I'm grateful that I had a way to make things right.
