Chapter 13 Questions

[Anonymous]

Hi, all.

I had a consultation with a bankruptcy attorney today and she recommended a Chapter 13 for my situation. I am feeling pretty overwhelmed by the prospect of not being able to improve my credit for 3-5 years, and then likely not being able to qualify to purchase a car or a home for years afterward. 

Could anyone who's been through a Chapter 13 tell me about your experience? Specifically, do you feel like it was beneficial to you? I'm struggling with feeling like I need a fresh start, and worrying that a Ch 13 will not provide that. 

I read lots of stories about Chapter 7s being so fast and you're able to get back to working toward improving credit, and bounce back so quickly even if it is difficult. It's discouraging to think that my whole life will feel as if it's on pause for 5-7 years with a Ch 13. Obviously, I do not want to get back in debt, and I know that neither option is a quick fix. I can see the benefit of a strict budget being enforced, but it just seems rough compared to a Ch 7. 

I am right on the borderline of financially qualifying for a Ch 7, and would likely pass the means test. But, filing would mean giving up my current car in my specific situation. I'm not sure if keeping a car is worth it. I'm hoping there are some benefits of a Ch 13 that I'm just not seeing. 

[jmw1]

Most of the time, you are better off in a 7. The corner case where a 13 makes sense is when you have big arrearages on your home, cars, or non-dischargeable taxes. Instead of your mortgage company demanding immediate or quick payment on mortgage or escrow arrearages, you can force them to accept a 60 month payment plan and they don't have the option of refusing or complaining. Your disposable income can go towards the above at the expense of the unsecured creditors. Your unsecured creditors also have to bear the burden of most of your legal fees and the trustee fees since they are of highest priority.  Now as far as the car assuming its quite upside down in the 13 (not 7).... if it's a newish car with a manufacturer's new car warranty remaining, it's better to pay the newish car rather than Mastercard and Visa. At least you have the use of a newish car with a warranty rather than nothing or a used junker with no warranty. 

If you are a borderline ch7, you really need to interview several BK attorneys and pick the best. The trustee will try to throw you out of the 7 and into a 13 so you need a good attorney who will fight for you instead of give up right away and throw you into a 13. 

As far as getting credit... yes you can buy a home during the 13 as long as it doesn't disadvantage your unsecured creditors. In other words, your housing payment (mortgage PITI) and housing maintenance costs (repairs) must be less than rent.  FHA will let you buy after one year of trustee payments. The thing is you cannot incur debt during the 13 because the budget is very tight and there is literally no room for any extra monthly payments. You can get a new credit card, but you have to treat it like as if it is cash. You can't let balances go to next month and I would argue you need to make a payment to the credit card within a few days of purchase so you don't get tempted into going into debt. 

[Shooting-For-800]

If you don’t have a home to lose and you qualify for a 7, I would do a 7.

How much equity in the car?

BKs are by FILE date not discharge date, so you would not have issues for years after 13 is done.

Both have advantages and disadvantages.

Add up you total payments in 13 vs 7.

GL!

[Anonymous]

Thanks for the insight. I don't own a home, and my car is not super upside down, I owe only a few hundred over what the car is valued at according to NADA. It's a 2016 with no problems. My issue is a lot of unsecured credit card and loan debt at high interest rates that I can't catch up on, and a lot of student loans that I know aren't helped by bankruptcy, but I can't get started paying on them if all of my money is going to the credit card and loan payments. 😫 

[coreyb80]

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@Anonymous wrote:

Thanks for the insight. I don't own a home, and my car is not super upside down, I owe only a few hundred over what the car is valued at according to NADA. It's a 2016 with no problems. My issue is a lot of unsecured credit card and loan debt at high interest rates that I can't catch up on, and a lot of student loans that I know aren't helped by bankruptcy, but I can't get started paying on them if all of my money is going to the credit card and loan payments. 😫 

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 Sounds like 7 may be your best bet unless your income doesn't support the 7 route.  As advised before, I would definitely check with another attorny or 2 first honestly.  I'm currently in the last year of 13 and will be done by this time next year.  It is very possible to repair your credit while in 13 as I've obtained a few credit products and pride myself on being responsible with the accounts.  

[jmw1]

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@Anonymous wrote:

Thanks for the insight. I don't own a home, and my car is not super upside down, I owe only a few hundred over what the car is valued at according to NADA. It's a 2016 with no problems. My issue is a lot of unsecured credit card and loan debt at high interest rates that I can't catch up on, and a lot of student loans that I know aren't helped by bankruptcy, but I can't get started paying on them if all of my money is going to the credit card and loan payments. 😫 

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If you end up in a 13, you cannot cherrypick the unsecured creditors to pay even though student loans will survive the BK while Visa and Mastercard won't. If student loans are 30% of your total unsecured debt, student loans will get 30% of the ch13 payment after priority debts (trustee and your lawyer fees) are paid. 

You will need a reliable (eg. newer) car to survive the 13 without unexpected repair bills. 2016 sounds OK but I was hoping it would be new enough to have the warranty. 

A single person renting an apartment who is above median with no large budget expenses allowed by the trustee like large medical expenses or large insurance premiums will have a very difficult time fitting into a 7 by passing the means test. People with big mortgage payments and secured/priority arrearages or large medical expenses can easily pass the means test. But apartment renters not so lucky and there is a limit that the rent can be depending on the area.

You may sense the lawyer already knows that you are unlikely to fit into a 7 without a big mortgage or some other big allowed expense on your budget. That's an indication if verified by multiple good BK attorneys that you won't be going to a 7.

[Anonymous]

I filed chapter 13 in March after being denied for a Chp 7 because of my income and assets. I do not own a home.  I am a single parent that barley receives any child support.  My lawyer was able to get my monthly payment to a reasonable amount and I'm comfortable.  I had a couple cards survive and I was able to obtain secured cards (with Trustee's approval)

I plan on purchasing a home next year, that is (1) advantage of filing a 13, you don't have to wait the 2 yrs...  All and all, I'm ok.  Initailly I was SICK when I was told I couldn't file a 7

I learned alot on the forums beforehand.  I closed alot of my zero balance accounts, paid some off that I did not want to burn and that I knew would be easier for me to get back in with...  

My scores are in my signature, I update them monthly.  All and all, do what you have to do and do it asap, don't wait

If you can file without any late payments, that will also help.

Don't stress, better days are ahead.

[Anonymous]

Chapter 13 was a great decision for me. I was discharged 11/20 (filed 9/14). Since November my score has risen steadily, from 500s to upper 600s, with a final goal of 760.

Life immediately got better after I filed-- stress levels reduced and was able to make a budget and stick with it. I recommend it to people if you work a regular job and can afford the monthly plan payments. I paid my car off in the BK and came out with clean title. 

Unlike Ch. 7 mine will drop off CRAs in 7 years from filing instead of 10. 

Best of luck. I found the process simple and straightforward, surprisingly so.