BEST CHAPTER 13 BANKRUPTCY ATTORNEY WITH 15+ YEARS OF LEGAL EXPERTISE
Unexpected circumstances such as job loss, income reduction, accidents, medical issues, or unforeseen expenses can have a devastating impact on even the most well-planned household budgets. Consequently, debtors may find themselves unable to meet their obligations, including mortgage payments, credit card bills, personal loans, or car loans. Failure to address these issues promptly can lead to serious consequences such as lawsuits, foreclosure, wage garnishments, and frozen bank accounts. It may feel overwhelming to regain financial stability. However, sometimes individuals truly need a second chance to regain control over their financial situation, and a Chapter 13 bankruptcy lawyer can offer that opportunity.
UNDERSTANDING CHAPTER 13 BANKRUPTCY IN NEW YORK
Chapter 13 bankruptcy is often pursued by homeowners who have fallen behind on their mortgage payments and wish to keep their homes. Many of these debtors may already be facing foreclosure. By filing for Chapter 13, they can halt the foreclosure proceedings, including any scheduled sale dates, and create a three to five-year payment plan to repay the past-due mortgage amount interest-free. Lenders are obligated to accept the Chapter 13 payments, directing them towards the outstanding mortgage balance. Moreover, the Bankruptcy Court typically provides a loss mitigation program to promote home retention, allowing homeowners to seek a loan modification. Successfully obtaining a loan modification through the Bankruptcy Court's loss mitigation program often presents the best chance for homeowners to retain their property when they are unable to afford a Chapter 13 payment plan with a substantial loan reinstatement balance.
Chapter 13 bankruptcy is not exclusively for homeowners facing delinquency on their mortgages. It is also suitable for individuals who do not qualify for Chapter 7 bankruptcy due to their income exceeding the eligibility criteria or possessing non-exempt assets they wish to retain. For debtors who don't meet the requirements for Chapter 7 or have valuable assets they want to protect from liquidation, filing for Chapter 13 bankruptcy can be the most effective solution to their debt problems.
When an individual files for Chapter 13 bankruptcy, the automatic stay provided under the Bankruptcy Code prohibits all debt collection activities, including payment demands through phone or mail, as well as the continuation of lawsuits, wage garnishments, and frozen accounts. The debtor is required to submit a proposed debt repayment plan, which must be approved by the Bankruptcy Court. It's important to note that the debtor may not have to repay all their unsecured debt in the repayment plan. The percentage of debt paid can range from a small portion to 100%, depending on various factors such as the total amount owed, the debtor's income, expenses, assets, and the types of debt involved.
Once the debtor's Chapter 13 plan is approved, it is paid over a period of three to five years, usually five years, and is interest-free on most debts. The plan consolidates the debtor's outstanding debts into a single monthly payment to a bankruptcy trustee. Moreover, if the debtor is repaying the full amount of their debt in the plan, they often end up paying less than the total owed. This is because only claims that are filed in a timely manner are paid in a confirmed Chapter 13 plan. If the debtor successfully completes the plan, any debts without timely filed claims are discharged, along with any unpaid debt in a plan that pays less than 100% of the unsecured debt. This debt discharge is similar to the discharge in a Chapter 7 case, and creditors are prohibited from attempting to recover the unpaid amounts.
Chapter 13 Bankruptcy vs. Debt Settlement
In a debt settlement program, debtors are advised to stop making payments to their creditors, which typically leads to debt collection efforts and potential legal action by the creditors to recover the debt. Creditors are not obligated to negotiate with debt settlement companies, and many refuse to do so. Debt settlement programs also come with significant costs, often charging fees of up to 25% of the total debt balances, which greatly reduces any potential savings. Additionally, any reduction in the balance owed through a debt settlement program exceeding $600 is considered income by the IRS. The creditor forgiving a debt over $600 will issue a 1099-C, which can result in a substantial tax liability. Unlike risky debt settlement programs, Chapter 13 bankruptcy offers debtors protection from legal action by their creditors, who are legally bound to accept the terms of the debtors' plans, even if only a small percentage of the debt is being repaid. Furthermore, the debt discharged in Chapter 13 bankruptcy is not considered taxable income, avoiding any negative tax consequences.
The Possibility of Stripping a Second Mortgage in Chapter 13
In the case where the debtor owns a home with no equity, and the balance on their first mortgage exceeds the current fair market value of the home, there may be an opportunity to remove a second mortgage in a Chapter 13 bankruptcy proceeding. This is known as a "lien strip," treating the loan as unsecured debt. Typically, removing a second mortgage involves filing a motion in the bankruptcy court. If the homeowner is successful, the court will order the release of the second mortgage lien from the property.
CHAPTER 13 FAQS
Chapter 13 bankruptcy is a legal process designed for individuals with regular income who want to restructure their debts and create a manageable repayment plan. It allows debtors to keep their assets while repaying creditors over a period of three to five years.
Chapter 13 bankruptcy is available to individuals, including sole proprietors and self-employed individuals, who have a regular source of income and unsecured debts below a certain threshold. It is often suitable for those who have a steady income but are struggling to meet their financial obligations.
Most types of debts can be included in a Chapter 13 repayment plan. This includes credit card debt, medical bills, personal loans, past-due mortgage or car payments, and certain tax debts. However, some debts, such as child support and student loans, are generally not dischargeable.
Under Chapter 13, a debtor proposes a repayment plan to the court, outlining how they will repay their creditors over a three to five-year period. The plan takes into account the debtor's income, expenses, and the amount owed to creditors. Payments are made to a trustee who distributes the funds to creditors.
No, one of the advantages of Chapter 13 bankruptcy is that you can keep your assets while repaying your debts. However, you must have enough income to make the required plan payments and fulfill your obligations under the plan.
Yes, filing for Chapter 13 bankruptcy can halt foreclosure or repossession actions against your property. The automatic stay goes into effect upon filing, providing temporary relief and allowing you to catch up on missed mortgage or car payments through the repayment plan.
Chapter 13 bankruptcy allows for the reduction or elimination of certain debts, such as credit card debt or medical bills, based on the debtor's disposable income and the repayment plan. However, some debts, like student loans and most tax debts, must be repaid in full.
In certain circumstances, you may be able to convert your Chapter 13 bankruptcy case to a Chapter 7 case. This may be appropriate if you experience a change in financial circumstances that makes it difficult to fulfill your obligations under the Chapter 13 plan.
During Chapter 13 bankruptcy, you will generally need court permission to obtain new credit. However, it's important to be cautious about incurring new debt and to seek guidance from your attorney to ensure compliance with the bankruptcy laws.
Chapter 13 bankruptcy remains on your credit report for a period of seven years from the date of filing. However, as time passes and you make regular payments under the repayment plan, you can begin rebuilding your credit.
Dalbir Singh & Associates, P.C. specializes in various areas of bankruptcy law, including:
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