Chapter 13 is a smart way to deal with debt problems that cannot be handled in Chapter 7
The reasons people file Chapter 13:
1. To catch up on delinquent mortgage payments or real estate taxes. In Chapter 13, a homeowner can pay the delinquent amounts over a period of 36-60 months and protect their property from foreclosure. A chapter 13 bankruptcy can stop the mortgage foreclosure process at any point up until the actual auction sale. In a tax foreclosure, the client must file the chapter 13 case prior to the last date of redemption set by the municipality. This is probably several weeks prior to the date of the public auction.
2. To restructure automobile loans with high payments, high interest rates, or payoff balances that exceed the value of the vehicle. Chapter 13 can help prevent vehicle repossession and can often result in significantly lower payments.
3. To pay delinquent income taxes, child support arrears, and other priority debts without any additional interest or penalties. Even if you have worked out payment arrangements with the IRS or New York State to pay back taxes, Chapter 13 bankruptcy can give you better payment terms. More importantly, any tax debt paid through the Chapter 13 plan will be paid without interest, and any penalties that were added to the tax debt may be mostly eliminated. We think that Chapter 13 is significantly underutilized as a tool to deal with tax liabilities.
4. To protect assets that might be subject to auction or sale in Chapter 7. By paying back creditors a percentage of their debt through a Chapter 13 plan, the non-exempt assets are kept permanently beyond the reach of your creditors. The exact repayment amount is determined by a variety of factors, including the value of assets and monthly income. Fortunately, New York has very liberal exemption laws, so most assets are protected in any type of bankruptcy you might file.
5. To eliminate unsecured debts (such as credit cards) when a person’s income is too high to qualify for Chapter 7. We are seeing significantly more clients these days with incomes in excess of the state median income for their family size. In most of these cases, the clients have high mortgage payments, car payments, and unsecured debt. They may also be paying tuition costs for their children or supporting other family members. Even if these clients cannot file Chapter 7, they absolutely need debt relief. Remember, that any unsecured debt that does have to be repaid through the Chapter 13 plan will not carry any interest charges.
Chapter 13 cases are handled differently in the Buffalo and Rochester Divisions and (sometimes) even before judges in the same division
One of the reasons I enjoy practicing bankruptcy law is that I have the good fortune to appear before some of the brightest judges in the country. While many judges in the federal, state and local system are elected or appointed based upon political affiliation, the bankruptcy judges are appointed solely based upon their qualifications in the field of bankruptcy law. While I may not agree with the decision of judge in a particular case, I never question their motivations, and I believe that the decisions are well reasoned and logical. I also believe that the judges in both Buffalo and Rochester are fair towards the clients. However, there are important differences in how the judges in Buffalo and Rochester handle Chapter 13 cases assigned to them. Here are a few examples:
1. The term of the plan will often depend upon the judge assigned to the case. While a judge in one case may be satisfied with a plan lasting three years, a judge handling the same set of facts in another case may only approve a five year plan.
2. In some courts, you can continue to pay your vehicle loan payments directly to the lender while in Chapter 13. In others, your vehicle loan will be included in your chapter 13 plan. In either case, the vehicle can be retained, but the amount that you end up paying for the vehicle and the amount you pay to other creditors can vary significantly before different judges.
3. Problems that arise after your case is confirmed are handled differently in different bankruptcy courts. For example, if you fall behind on your chapter 13 plan payments in a Buffalo case, the default can generally be cured informally by increasing your payments for the rest of the plan. In Rochester cases, a default in your plan payments must generally be handled with a formal modification, and this will subject your case to significantly more scrutiny.
You should not trust your case to an attorney that does not have many years of experience handling Chapter 13 cases
Our office has filed thousands of Chapter 13 cases. We have solid relationships with all the Chapter 13 trustees in Buffalo and Rochester, and virtually all of the Chapter 13 plans we file are approved by the bankruptcy courts. While it is probably true that a very basic Chapter 7 case can be handled by a competent general practice attorney, Chapter 13 cases should only be handled by a qualified bankruptcy attorney.