Bankruptcy Lawyers in Bristol & Kingsport, TN

Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy case, the initial process is similar, but in in addition you are proposing a PLAN to repay some portion of your unsecured debt, along with a PLAN of how to deal with secured creditors over a 36 to 60 month plan.

A Chapter 13 bankruptcy is a long-term repayment plan to repay some or most of your debts. A Chapter 13 repayment plan has to last at least 3 years, or up to 5 years. It may be a shorter plan if you’re able to pay off all your debts in less than 3 years, but essentially you’re required to devote as much income as you can to the repayment of your debts for the next 3-5 year period.

Some individuals, referred to high-income earners, are limited to a 5-year plan that they must file and make 60 consecutive payments to their creditors.

The basic difference between Chapter 13 and Chapter 7 is the length of time. In Chapter 13, it will be several years before you receive a discharge of your debts and a fresh start. It is clearly going to be more expensive because you are paying back some amount of money to your creditors.

Even though a Chapter 13 bankruptcy is more expensive and will last longer than a Chapter 7 bankruptcy, there are provisions that allow for things to happen that cannot be done in Chapter 7.

One of the most important uses of a Chapter 13 is to help a homeowner get their mortgage caught up and back on track. In a Chapter 13 bankruptcy, if you are behind on your mortgage, you can schedule an extra amount to be paid along with your regular mortgage payment that will eventually get your loan caught up and current, so you can no longer be in default on your mortgage. If you are behind on a car, you can completely reorganize the car loan. If you owe taxes, you can use this as an opportunity to put your taxes in a repayment plan.

There are many good reasons to consider filing a Chater 13, but they are normally restricted to people who have special circumstances that fit that profile. As a result, most cases we file are under Chapter 7, and for those who do need reorganization or have special problems, we use Chapter 13.

Chapter 13 involves reorganizing your debts. Your plan may call for your auto payment to be reduced. You can schedule to catch up past due payments on your home. You may be able to eliminate a second mortgage altogether. A description of the alternatives available to you in a Chapter 13 case is too extensive to be listed here.

Most of our clients do NOT file a Chapter 13 case. Because it lasts between 36 to 60 months it is not used unless it offers you a superior benefit to a discharge in Chapter 7. Chapter 13 is vastly more expensive, given that you are paying for an attorney for up to 5 years; and you are paying back part of your unsecured debt.

A Chapter 13 is a complicated and expensive way to resolve your debt problems. We use it in appropriate cases, but find that most of the time the shorter and less expensive Chapter 7 cased will resolve your problems.

Mistakes Our Bankruptcy Clients Make

Moral of the story: Don’t make financial decisions in a debt crisis, consult a professional first.

There are things that you might consider doing to resolve your financial problems on your own that can make your situation much worse.

• Don’t give away valuable possessions. Some people transfer assets out of their name in the hope of protecting them.  I not talking about a legitimate sale of something you own for a fair price – that’s OK. If you have a car worth five thousand dollars and you sell it for four thousand dollars that is a legitimate sale. But – If you give away an asset or transfer an asset for a lot less than it is worth, you and the person you transferred too may get in trouble. Giving away assets or selling them cheap to friends or family is called a Fraudulent Transfer. The transfer can be reversed.  The asset can be recovered from the transferee and title put back in your name.  Then it will be taken from you and sold to pay your creditors.

We urge that you do not sell or transfer assets out of your name unless you consulted with us first. We will need to advise you as to what are legitimate transfers and what might be a Fraudulent Transfer.

• Don’t repay family members or favored creditors.  Another thing you can do to hurt yourself and others is to repay debts that you owe to family or friends.  It seems natural and fair to pay debts to your family over other creditors, but it is a problem if you file a bankruptcy case.  If you make payments to a family member within a year of filing a bankruptcy they may be considered to have received “preferential treatment “over your other creditors. If you have chosen to pay your family over other creditors then both you and they may have a problem. The problem is that the bankruptcy trustee will look for things like this. If you have transferred assets to your family you will be asked under oath to reveal that information. If you choose not to reveal the information you have committed a felony. If you do the information your family member may be told to repay the money.

I assume you do not want your family members involved in your bankruptcy case. Therefore, do not transfer assets to them. Do not pay back debts to them unless you have consulted with us to make sure what you are doing is legitimate.

• Don’t use retirement funds to pay off debts. We also recommend you never consider spending money out of pension plans to solve debt problems. You make exhaust yourself of one of the assets you need when you retire. Pensions and retirement plans are normally protected assets which you can expect to keep in a bankruptcy case.
• Don’t commit a felony! The worst thing a person can do is to hide assets and fail to disclose them in their bankruptcy schedules.

DO NOT ASK US TO HELP YOU COMMIT A CRIME!

That will also get you kicked out of bankruptcy and you will not receive a discharge or a fresh start. You must disclose all of your assets. If you cooperate with the system and do not take any actions to have your motives questioned, we can get you through a bankruptcy case without making it an ordeal for you or your family members.

Reestablishing Credit After Bankruptcy

After you exit the bankruptcy process you may want to borrow money for a car, or refinance a home.  The question is “what kind of credit can I get if I have been through a bankruptcy.”

The first thing to remember about credit for big items, like homes and vehicles, is that it is largely individualized and depends deeply on your income at the time of seeking a loan.

When our clients go through a bankruptcy they become prospects for vehicle loans. You will be contacted by dealers, and finance companies soliciting you to buy a vehicle. They want your business because you have discharged all of your debts and you are beginning your fresh start.

We do not normally recommend you consider those due to the loans high interest rate. If you can wait a year or more you will most likely be able to rebuild your credit score enough to buy a car with a much lower interest rate.  But if you need a vehicle while in a bankruptcy case, or shortly after concluding your case, there are many sellers.

Homes are quite different.  A new home loan applicant may face up to a 2 to 3 year waiting period after completing your bankruptcy case. This is not true for all home mortgage lenders.  Each situation being individualized and we can not predict if you could buy a home or refinance a home.

You will be offered credit cards and other types of loans after your discharge; and we discourage taking these offers. We do not find it is necessary to take on a debt in order to prove you have reestablished yourself.

Please avoid new debt if you can: You have gone through a hard experience because you had a problem with debt.  We recommend you avoid using credit unless it is necessary, for as long as possible.