About Chapter 13 Bankruptcy
Chapter 13 bankruptcy is the opposite of Chapter 7 bankruptcy. In Chapter 7, individuals who file for bankruptcy (called "bankruptcy petitioners") risk losing certain property, while in Chapter 13, there is absolutely no risk that they will lose any property. However, unlike in Chapter 7, Chapter 13 bankruptcy petitioners will have to submit a plan to the court that will require them to make monthly payments for the next 3 to 5 years in order to pay back a percentage of the debt they owe. All payments are made directly by the petitioners to a court appointed Chapter 13 trustee who in turn, after taking a commission, will make payments to these creditors.
In most circumstances, it is preferable to file Chapter 7 rather than Chapter 13 as Chapter 7 does not require monthly payments to the trustee. It also requires less work on the part of the attorney and as such, the legal fees are lower. Additionally, Chapter 7 petitioners will receive their discharge in approximately 3 months after they file while Chapter 13 petitioners will have to wait until their entire plan payments are paid, typically 3 to 5 years. As individuals can only start re-building their credit once they receive a discharge, it will take a Chapter 13 petitioner significantly longer to re-build their credit as compared with a Chapter 7 petitioner.
However, there are several instances where it is preferable or necessary to file a Chapter 13 rather than a Chapter 7.
First, when the consumers fail to qualify to file a Chapter 7 as their income is too high and it is unlikely that we will be able to show lower income or increased expenses that will offset this income in the near future.
Second, the petitioners have significant property that they are likely to lose if they file for Chapter 7.
Third, a Chapter 13, unlike a Chapter 7, can be used to stop foreclosure actions. Once a Chapter 13 is filed, the foreclosure action is suspended and the mortgage lender is required to accept monthly mortgage payments again. The petitioner will then make monthly payments to the Chapter 13 trustee, who will in turn pay the lender the arrears it is owed. The monthly trustee payments have to be large enough so they pay the mortgage lender all of their missed payments over a maximum of 5 years. Once the plan is paid in full, the Chapter 13 petitioners receive their discharge and the foreclosure action is ended. However, if the petitioners do not have sufficient income to make these payments to both the Chapter 13 trustee and the mortgage company, they can file a Chapter 13 petition, commence making reasonable mortgage payments to the Chapter 13 trustee and negotiate within the framework of the Chapter 13 to modify the mortgage.
Fourth, individuals can only receive a Chapter 7 bankruptcy discharge every 8 years. As a result, if the petitioners already received a discharge in the last 8 years, they will not be able to receive another one. However, there are many times it is necessary to file a bankruptcy to protect against wage garnishment or preventing bank accounts from being frozen. Monthly plan payment individuals are required to make to the Chapter 13 trustee are usually significantly less than the payments that would be taken from their paycheck through a wage garnishment.
If you are interested in filing for or learning more about Chapter 13 bankruptcy, give Kinzer & Musikar a call at 631-321-4444 to make a free, no obligation appointment at our Deer Park office, conveniently located at 2061 Deer Park Avenue (Route 231) approximately 1 mile south of Exit 51 of the Long Island Expressway and approximately 2 miles north of Exit 39 of the Southern State Parkway.