Why Declare Chapter 13 over a Chapter 7

Having spent many years as a bankruptcy lawyer in CT, I’ve found that a lot of my clients cannot believe that they’ll probably have to file a Chapter 13 bankruptcy to save their home from foreclosure. What are the differences between chapter 13 and chapter 7? Read on to find out.

The differences of Chapter 13 and Chapter 7

There’s one thing you have to know off the hop – a Chapter 7 bankruptcy petition is very similar to a Chapter 13 petition and both have Schedules which are identical. This means you have to list all of your priority debts (i.e. taxes, alimony,child support debts). This is found in Schedule E.

In Schedule D, for both Chapter 7 and Chapter 13 petitions, a list all of your secured debts is required. These would be such things as mortgages, car loans, judgement liens and pension loans.

In Schedule F, you are required to list all of your unsecured debts such as personal loans, credit card debts, and medical bills. This applies to both a 7 and Chapter 13 filing.

Your income must be listed in Schedule I and your expenses need to be listed in Schedule J. These Schedules are exactly the same but in a Chapter 13 filing, at the bottom of Schedule J, you enter information as to whether or not you have excess income for the month in order to pay on your mortgage and what will be your monthly payment in the Chapter 13 Plan.

So should I file for Chapter 13 Bankruptcy?

If you’re an individual and have a regular income you can file for Chapter 13 bankruptcy to save your home from foreclosure. Corporations and business partnerships however cannot. If you are an individual you should be aware that there are several debt limits to a Chapter 13 filing which are:

1. your non-contingent liquidated and secured debt can be no more than $922,975.00
2. your non-contingent liquidated and unsecured debt can be no more than $307,675.00

What would I file for Chapter 13?

Well, there are several reasons. For one, you may want to file Chapter 13 in order to save your home especially if you can prove a regular income. This income can be through:

1. unemployment income
2. child support
3. disability income
4. social security income
5. pension income
6. business income
7. rental income
8. regular work wages

All you would need to ensure is that your income is constant and on a regular basis. If you aren’t in a position to make regular monthly payments, you run the risk of your Chapter 13 Plan being ruled as being not feasible.
I can safely say that at least 99% of all my clients that file Chapter 13 petitions do so when their home is in foreclosure.

What do I need to know?

Well, there are a few things to consider when filing for Chapter 13 bankruptcy in an attempt to save your home and they’re related to your obligations and your responsibilities.

For starters, you have to know that you’re expected to start making regular monthly mortgage payments again and because of the seriousness of the matter at hand, it’s of the utmost importance that you know exactly when your mortgage payment is due and that you always make those payments.

Also, if you’re employed, the Court will, upon Confirmation of your Chapter 13 Plan, make an order of a wage deduction to come out of your pay. If you’re concerned that people at your work – especially those in payroll – will become aware of your financial situation, then Chapter 13 may not be the route to take.

How does Chapter 13 work to save your home?

Let’s suppose that your monthly payment on your mortgage is $1,200 and you have missed 5 payments on your mortgage. Once you file a Chapter 13, you immediately must start paying $1,200 on your mortgage, and you take the total missed payments ($1,200 x 5 = $6,000 and divide that by 60 months = $100.00) and every month you pay to the Trustee $100 on the arrearage of your mortgage.

Therefore, your total monthly payment for your home mortgage would be $1,300 per month ($1,200 on the mortgage + $100 to the Trustee = $1,300). Now this is a very simplified explanation. Trustee fees and attorney fees combined with other factors have been deliberately omitted from this explanation in order to simplify it for you.

Remember you have options

The above information is just a very brief synopsis of some aspects of filing chapter 13. I have a full list of questions and answers about Chapter 13 that you can sift through on the link above but if you have more questions that aren’t answered there, you can call our office directly and I’d be more than happy to answer your questions.

I’m here to help you as I’ve helped thousands of other Connecticut families get out of debt and put their finances back in order – with or without bankruptcy – remember, you have options.