If nonbankruptcy alternatives are just not achievable for you, which is the case in most situations where clients have significant debt, such as credit card payments, medical bills, etc., you must choose between a liquidation bankruptcy under Chapter 7 of the U.S. Bankruptcy Code or a debt adjustment proceeding under Chapter 13 of the Bankruptcy Code.
The main difference between Chapter 7 and Chapter 13 bankruptcy filings is that in a Chapter 7 case, your nonexempt property (if any exists) is liquidated to pay as much as possible of the your debts, while in a Chapter 13 case, a portion of your future income is used to pay as much of your debt as is feasible under your circumstances. Note, that in most Chapter 7 cases, clients are typically able to keep all of their property. Further, Chapter 13 cases take longer to conclude than Chapter 7 cases. Our Florida bankruptcy attorneys file both types of cases.
Chapter 13 bankruptcy in Florida is ideal for individuals who want to save their home from foreclosure, lower an expensive car payment, consolidate debts or save other valuable assets when Chapter 7 won’t allow them to accomplish their financial goals. Chapter 13 bankruptcy allows you to avoid an oppressive financial situation by giving you the opportunity to reorganize your debts without losing your property to your creditors. In this type process, you can arrange a new repayment schedule that is manageable for you, usually allowing you to secure financial stability in a short period of years.
While a Chapter 7 bankruptcy case in Florida is usually resolved and completed within a few months, Chapter 13 is intended for individuals that need to propose a longer-term plan to save their property or pay back debts over time – usually 3 to 5 years.
A Chapter 13 bankruptcy is sometimes referred to as a “reorganization” plan. This type of bankruptcy case permits an individual to resolve many types of financial problems. For example, Chapter 13 is ideal for people who want to save their residence from foreclosure, lower an expensive automobile payment, consolidate debts or save other assets when Chapter 7 won’t allow them to accomplish their financial goals. Chapter 13 is also used by people that don’t qualify for Chapter 7 because of the “Means Test” (their disposable income is in excess of maximum incomes for Florida).
Non-exempt Property
Sometimes Chapter 13 is used by people that have assets that are “non-exempt”, which means that they are not protected with available exemptions, so they propose a plan that will pay the creditors the same as they would have received in a Chapter 7 case—and thus they get to keep their non-exempt property. Chapter 13 also is suitable for individuals that have student loans, unpaid taxes, or have spousal support debts, when these debts are not permitted to be in a Chapter 7 bankruptcy.
Debt Limits
U.S. bankruptcy codifies debt limits, “jurisdictional limits”, such that if you have more than $1,257,850 in liquidated secured debts or more than $419,275 in liquidated unsecured, undisputed debts, then you won’t be allowed to file Chapter 13. These jurisdictional limits adjust upwards every three years.
Secured Debt
The term secured debts refers to mortgages and other liens on your property or liens on vehicles, boats or other personal property. The unsecured debts that count under the above limit, currently $419,275, are debts where the amounts are not in dispute (like credit card debts). Under U.S. law, if your debts exceed these limits, you can still file a Chapter 7 bankruptcy, but if you need to reorganize your debts, you will have to file under Chapter 11.
Automatic Stay under Chapter 13
The filing of a Chapter 13 case automatically stays, or stops, all garnishments, lawsuits, attachments, foreclosures and other actions by creditors against you or your property. This stay is called the automatic stay. A few days after the case is filed, the court will mail a notice to all creditors advising them of the automatic stay. At the end of the case, when you receive the Chapter 13 discharge, the creditors will then be prohibited from collecting the discharged debts from you after the case is closed.
The Chapter 13 Repayment Plan
The Chapter 13 repayment plan is the heart of your bankruptcy case under Chapter 13 of the Bankruptcy Code. Every person in Florida who files for Chapter 13, must file a plan with the Court. The repayment plan sets forth how much each creditor will get paid, the length of the plan, the values of the individual’s property and other plans. The repayment plan must be ratified by the Bankruptcy Court in order for the case to proceed. This Court process is known as the “confirmation of the plan.” The bankruptcy trustee and creditors can object to different parts of the plan.
Your repayment plan must separate creditors into classes, or categories, of debt that have like features. Your repayment plan must contain provisions to treat each creditor in a class the same as every other creditor in the same class. If your plan does not permit for the payment of 100% of the claims of debt against you, then the term of the repayment plan may be extended from 3 years to 5 years. Your repayment plan, under U.S. bankruptcy law, must also be feasible, meaning, evidence needs to exist that you will be able to actually make the payments proposed under your repayment plan. The Bankruptcy Court will not agree to the repayment plan if you do not show that you actually can abide by the terms of the plan.
Repayment Plans in Chapter 13 may also be used to restructure your crushing debts in some very useful and manageable ways. It is common for Chapter 13 Plans to propose lower than a 100% pay out to unsecured creditors (such as credit card companies), often because most of the typical individual debtor’s excess income is used to cure a default on a mortgage on a home or some other secured debts, like taxes. So unsecured creditors often receive a very low or perhaps a zero payout in Chapter 13 bankruptcies.
“Stripping Liens” under the Chapter 13 Repayment Plan
Further, a Chapter 13 Repayment Plan may also be used to “strip” certain liens. Lien stripping in is a process that allows you to purge a junior lien (such as second or third home mortgage) from your real estate. You can strip a junior mortgage, and the associated lien, if the home is worth less than the balance of the senior and primary mortgage. This benefits the debtor because the “unsecured portion” of the debt will be placed into the category of unsecured claims and will receive a pro rata payment with the other unsecured creditors.
Discharge of Debt
Most debts are “discharged” when you complete all payments due under your repayment plan, with the exception of most student loans. Your repayment plan can certainly lower your payments on your student loans during the plan’s term and any other amounts due are deferred during the term of the plan.
If your home is in foreclosure, your Chapter 13 repayment plan may be used to save your home. Your Plan can take the past due payments (the defaulted amount) and put them into the plan to be paid back over the term of the Plan at a 0 percent interest rate. The Chapter 13 case stops the foreclosure at the time you file your bankruptcy petition, and if you stay current on the payments that come due after that, and you make your repayment plan payments, you will save your property.
Your repayment plan may also deal with tax debt. Your plan may completely discharge your tax debts that are more than three years-old and unpaid income taxes that are more recent may be repaid with zero interest. This usually results in a significantly lower payment than you might get through the process of an offer in compromise with the IRS.
Chapter 13 may also be utilized to decrease interest and payments on a car or truck loan and may increase the term of your existing loan. Therefore, your repayment plan may be utilized to make your vehicle loan more reasonable and affordable and allow you to put defaulted payments into the repayment plan to be cured over time. Another important feature of Chapter 13 related to car loans is that you may cram down or lower the vehicle loan amount if your vehicle loan is more than 910 days old. A cram down occurs when the loan amount exceeds the value of the vehicle and your plan proposes to reduce the loan amount to be equal to the value of the vehicle (with any unsecured portion placed into the category of other general unsecured loans). The reduced vehicle loan balance then becomes the secured loan that is paid through your repayment plan.
Our Florida attorneys fight in Bankruptcy Court for your financial freedom and your family’s well-being. We file bankruptcy cases in Broward, Palm Beach, Martin, St. Lucie and Okeechobee counties.