Chapter 13 Bankruptcy Isn't All Bad

       In meeting with my clients at Halcomb Singler, I have noticed that people potentially needing to file bankruptcy have already decided that they don't want to file a Chapter 13 Bankruptcy.  It is not uncommon for folks to come in and tell me that if they don't qualify for a Chapter 7 Bankruptcy then they just aren't going to file for bankruptcy.  Sometimes I agree with them and sometimes I do not.  I do admit that a Chapter 13 Bankruptcy can be difficult.  As a general overview, a Chapter 13 allows debtors to repay creditors over a period of 36 to 60 months at no interest.  The amount which must be paid varies between debtors.  However, the monthly payment is usually one that the debtor can afford...however, it means cutting the fat out of his or her budget.  Making it through a Chapter 13 and obtaining a discharge takes discipline and work.  However, there are many great tools that can be used in a Chapter 13 and I wish that people would not rule it out before they are informed of these potential benefits.  So, I have compiled a list of a few "tools" of Chapter 13 bankruptcy that can be very helpful to some debtors.  This is not an exhaustive list, as each potential bankruptcy debtor's circumstances are different.

1.  Mortgage Repayment:  One of the most useful tools in a Chapter 13 bankruptcy is that people who got behind on their house payment, but now have the means to make the house payment as well as an additional payment to the trustee may catch up their mortgage over 3 to 5 years.  I have helped numerous clients get current on their homes with a Chapter 13 Bankruptcy.

2.  Income Taxes:  Income taxes that are not dischargeable may be paid over the life of the plan.  This allows debtors to become current on their tax debts and to emerge from bankruptcy with no debt to the IRS or Indiana Department of Revenue.

3.  Domestic Support Obligation:  Chapter 13 Bankruptcy is a great way to help catch up child support or domestic support obligations.  Some debtors are able to catch up their domestic support obligations and pay back very little to their other general unsecured creditors.

4.  Vehicle Cram Down:  Debtors are able to virtually refinance a vehicle purchased at least 2.5 years prior to the bankruptcy filing.  This can be very helpful if the vehicle was purchased at a high interest rate.

5.  Strip your Second Mortgage:  A lesser-known benefit of a Chapter 13 in Indiana is that if your home is worth less than you owe on your first mortgage then you can petition the court to strip off, or deem unsecured, your second mortgage.  This is a very valuable tool for those debtors who are greatly under water on their homes to get back on track financially after bankruptcy.

6.  Co-signers are protected:  When the automatic stay that prevents creditors from attempting to collect from the debtor is in place, a co-signer is also protected.  So, if your mother, for example, who did not file bankruptcy, co-signed on your car loan she will not be harassed by creditors during the Chapter 13 plan so long as the vehicle is subject to the automatic stay.  This does not mean that she wouldn't still be liable for the debt if it was not paid through the Chapter 13 after the bankruptcy was discharged or dismissed.

7.  Creditors cannot opt-out:  Unlike debt consolidation or credit counseling, creditors cannot opt out of a Chapter 13 bankruptcy.  So long as the automatic stay remains in effect, creditors are not permitted to file lawsuits, lawsuits that have been filed are stayed and collection calls stop.

8.  Pay Back Less than you Owe (Usually):  Most debtors end up paying back far less than they owe to unsecured creditors, who are the last in the pecking order of bankruptcy to receive a piece of the payments debtors make to the trustee.  And, at the end of the Chapter 13 bankruptcy when the debtor receives a discharge, the unsecured debt is gone even through it was not paid in full during the three to five year repayment plan.

9.  Protect Property that is not Exempt:  If a debtor has property above and beyond what is exempt in Indiana, the debtor will not lose this property so long as creditors are receiving more money through the Chapter 13 than if the non-exempt property was liquidated and distributed to creditors through a Chapter 7 Bankruptcy.  This is called the Best Interests of the Creditors test.

10.  Pay back Creditors:  While I hesitated to list this as a "benefit" to filing a Chapter 13, I have noticed that many of my clients really want to pay their creditors something.  Through the filing of a Chapter 13 many of my clients feel a sense of accomplishment in being able to pay back some of what they borrowed.

         To those of you in the Indianapolis area, if you would like to meet me for an evaluation of your debt and to be advised as to whether I believe you are a candidate for a bankruptcy or for debt consolidation, please contact me through my law firm's website.  I am happy to meet with individuals for a free initial consultation to review your income, assets, expenses and general financial health to advise whether bankruptcy may be a helpful tool for you.

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.