The Positives and Negatives of a Chapter 13 in Raleigh, NC
Positive Aspects of a Chapter 13 Bankruptcy in Raleigh, NC
- A Chapter 13 wipes out more types of debts than a Chapter 7, including some debts that are normally not bankruptable. A Chapter 13 can be used to repay certain debts that a Chapter 7 cannot, such as fraud debts, child support, taxes less than 3 years old, and student loans.
- If you can’t finish the plan but you have repaid the majority of the Chapter 13 payments, you may be able to get a “hardship” discharge for having made most of the plan payments, as long as you have repaid what a 7 would have repaid. If your Chapter 13 is dismissed voluntarily or due to a willful violation of a court order you cannot re-file another Chapter 13 for 6 months. If it was dismissed involuntarily due to no fault of your own you can re-file at any time. If you were in a credit counseling plan instead of a Chapter 13, and you fail to finish paying payments, you go back to owing as much as you originally owed.
- If you can’t finish the repayment a Chapter 13 can be converted to a Chapter 7.
- A Chapter 13 protects co-signers, as long as the Chapter 13 pays the debt in full, and it allows you to keep property that you might otherwise have to turn over in a Chapter 7 liquidation bankruptcy. (A Chapter 7 does not protect co-signers and only protects joint property belonging to the Debtor while the Chapter 7 stay is in effect.)
- A Chapter 13 can stop foreclosures and repossessions. It can allow you to catch up on debts secured by collateral that you want to keep. A Chapter 13 bankruptcy can discharge things that a Chapter 7 cannot discharge.
- The power of the automatic stay keeps Creditors off your back. A Chapter 13 will stop foreclosures, garnishments, and Creditor harassment. A stay is a Court order that goes into effect when you file the case. The stay orders Creditors not to take further collection action. In order to foreclose or repossess a bank must get permission to terminate the stay and then foreclose or repossess property. If you fail to pay the regular monthly payments on your secured debt or the payments to the Trustee in a Chapter 13, your case will be dismissed or the creditor will be given permission to foreclose or repossess their property. If your case was involuntarily dismissed and it was not for a willful violation of a court order, you can re-file any bankruptcy immediately. If an objection is filed or your case was dismissed for a violation of court orders you must wait 6 months under 109(g) to re-file.
- In a Chapter 13 plan you may be able to lower the interest rates being charged to you on certain loans (especially car loans), stretch out your payments, and still keep your property.
- If you file a Chapter 13, you partially repay unsecured debts and with no interest. In the past over 90% of all Chapter 13 cases failed because the Debtor couldn’t afford the Chapter 13 payments. But now most people only repay about $700 for every $7000 owed in a five-year plan.
- A Chapter 13 usually allows you to keep all of your non-exempt property. Remember, however, that judges are wary of letting you keep what they consider to be luxury items on which you still owe secured debts unless you are paying back 100% of your unsecured debts.
- A Chapter 13 consolidates your bills and gives you up to five years to repay money you owe for taxes, or to catch up mortgage payments that are in arrears, etc. Your monthly expenses may be reduced.
Some percentage of your unsecured debts may be forgiven, although you are expected to pay as much as you can afford. Plans that pay only 20-30 cents on the dollar are now common but 70% used to be required.
- A Chapter 13 allows you to pay unsecured Creditors only what you can afford to pay them over the three to five years of your bankruptcy. However, you cannot pay less than what a Creditor would have received if you had filed a Chapter 7 bankruptcy and your property was liquidated and the proceeds used to pay Creditors.
- A Chapter 13 may be your only choice if you have filed within the last 8 years. A Chapter 13 is best if you have large secured debts, like a house, a car, and furniture, and a lot of equity in your property. If you are having trouble paying for these items, a Chapter 13 could lower the payments and interest rates enough so that you may be able to keep them. If you are behind on your bills, you may also be behind on making your house payments. A Chapter 13 is an especially effective way to keep your house if you are about to lose it. Usually, your house is most important to you. You may also decrease interest rates and payment amounts.
- Chapter 13 cases may normally be filed as often as they are needed and they are very useful if you have so much property that the property cannot be kept with the exemptions that you have. One major advantage of the Chapter 13 is that a person will often keep all of his or her property, no matter what the property is or how much equity the Debtor has in that property as long as their plan repays what a Chapter 7 would have paid. A repossession or voluntary surrender of collateral (for instance returning a car) is normally worse in its effects than filing a bankruptcy and it increases the time you will have to wait to get another home.
Negative Aspects of a Chapter 13 Bankruptcy
- Chapter 13 attorney fees are higher AND you make monthly payments for 3 to 5 years.
- You MAY have to pay all or some of your unsecured debt (Over a period of up to 5 years)!
- During the Chapter 13 Bankruptcy in North Carolina you will need to ask the Court for permission before making many major financial decisions, such as financing a car or selling property worth more than a prescribed amount.
- Filing a Chapter 13 will be reported to the IRS. If you have not filed taxes or paid taxes over the last few years, any tax debt you have will be added to your Chapter 13 repayment plan. In a Chapter 7, if you filed taxes properly and promptly, any income tax over 3 years old that you owe may be discharged. You must file your taxes up to date in order to file a Chapter 13.
- If you file a Chapter 13, you may lose your tax refund to the repayment plan. If your income goes up or down the payments may be adjusted.
- If you have filed a Chapter 7 within the last eight years, a Chapter 13 is your only option. A Chapter 13 will tend to hurt your credit more than a Chapter 7, if your credit rating was good when you filed. A Chapter 13 requires a long period of involvement with the Court. During this time, you may fall farther behind on unsecured accounts while secured accounts are being paid. Or, your secured accounts may fall behind while taxes and priority claims are being paid.
- Chapter 13 cases are subject to certain debt limits, but those limits are extremely high and won’t apply to the majority of people.
Common Problems Associated With Chapter 13
- Having insufficient income to pay the Chapter 13 payments
- Proposing a plan that must pay an amount at least equal to a Chapter 7
- High failure rates from debtors becoming ill or disabled later and not being able to complete the repayment plan
- Requires long period of involvement with the Court
- Higher costs, including attorney fees and loss of income tax refunds
- Having the court involved in your life
- Tendency to hurt your credit more than a Chapter 7 if your credit rating was good when you filed