CHAPTER 13 BANKRUPTCY

Chapter 13 bankruptcy is designed for individuals who have gotten behind on house and/or car payments, or who owe substantial tax debt and need a structured plan of repayment to the IRS or state. Another reason people file Chapter 13 bankruptcy is their income is too high under the Means Test to file Chapter 7.

Chapter 13 bankruptcy provides individuals with the opportunity to pay their delinquent house and/or car payments over the period of 3 to 5 years, instead of all at once.  During the term of the Chapter 13 case, the individual must resume making the regular monthly mortgage payments and also make a Chapter 13 Plan payment, a portion of which goes to the mortgage holder(s) to pay down the delinquent payments.  If you are delinquent with car payments, Chapter 13 allows you to repay the balance of the car note over the period of 3 to five years, regardless of the original term of the note, and may provide for a reduction of the interest rate on the car note.

When a Chapter 13 is filed, the debtor is also protected by an “automatic stay” similar to a chapter 7. While the automatic stay is in place creditors cannot try to collect against you, unless they get special permission from the courts. This includes harassing phone calls, collection letters, wage garnishments, foreclosure actions, repossessions, lawsuits, and utility shutoffs.

Before you file a Chapter 13 case, we determine the monthly amount required to be paid into your Chapter 13 Plan and you determine whether you can afford the Plan payment.  In most cases, our clients find the monthly Plan payments fit comfortably within their budget without affecting their standard of living.

For individuals who owe substantial tax obligations(commonly self-employed or other small business owners) Chapter 13 offers the opportunity to repay tax debt over a much longer period than the IRS or Wisconsin Dept. of Revenue will allow outside of bankruptcy.  In some cases, the Chapter 13 can eliminate tax debt (typically requires that the tax be for a tax period at least 3 years old) and can eliminate penalties and interest on other tax debt.

Although there is a trustee in every Chapter 13 case, Chapter 13 greatly differs from Chapter 7 in how the case is administered. The debtor remains in possession and control of that property throughout the Chapter 13 case without interference from the trustee. If the debtor is in business, the debtor can continue to operate that business during the course of the Chapter 13 case.

Chapter 13 is truly a unique opportunity to regain control of your finances and repay all, or in many cases just a portion, of your debt obligations in a reasonable time with the protection of the courts.

Common Questions About Chapter 13 Bankruptcy

  • Stop foreclosure and allow you to catch up, as well as retain possession of your house.
  • Stop repossessions and allow you to catch up, as well as retain possession of your vehicle.
  • Repay taxes at a reduced rate and at a reasonable payment plan.
  • Only pay general unsecured creditors a portion of what they are owed, sometimes as little as pennies on the dollar

You should contact your attorney. Together, you and your attorney can determine if it is best to convert your case to a Chapter 7 bankruptcy or allow your current Chapter 13 bankruptcy to be dismissed.

The Trustee can move to dismiss your case if you miss a payment. If this happens, call your attorney as soon as possible. Your attorney may be able to work with the Trustee to come up with a solution.

Not really, because if your income would allow for faster payback than 36 months, the Trustee will normally set the plan at 36 months and require a larger percentage of funds go to your unsecured creditors.

It's not recommended. If your income changes permanently you must inform the court so your payment plan can be adjusted. But, if you come into a few extra dollars, save it for emergencies.

Yes, you have the opportunity to keep your home; however, a debtor will be required to make payments while in your Chapter 13. Any amount you are behind on your mortgage will be paid through a Chapter 13 plan. After filing a Chapter 13 bankruptcy, the debtor must remain current with the monthly mortgage and pay that outside of the plan. Failure to make monthly payments to your mortgage company gives creditors the right to ask for relief from the automatic stay and proceed with seizure actions such as foreclosing on your home.

If you miss a payment to your mortgage company, call your attorney as soon as possible. Often your attorney can work with the mortgage company and the Trustee to come up with a solution to save your home.

Generally, yes you can keep your vehicle while in a Chapter 13. If you own your vehicle and it has no liens on it we can use exemptions so you can keep that asset. If you still owe money on the vehicle, the remaining balance can be paid through the plan. Often the amount owed can be reduced depending on the worth of your vehicle and the interest rate can be lowered depending on when you purchased the vehicle.