Chapter 13 Bankruptcy

Chapter 13 Bankruptcy Lawyers in Buffalo, Rochester and WNY

The 5 most common reasons people file chapter 13 bankruptcy

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 generally several weeks prior to the date of the public auction. Local municipalities have become much more aggressive in recent years in their tax foreclosures, so it is extremely important that you contact us well before the redemption date if you want to be certain to protect your property.

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. 

Chapter 13 bankruptcy procedure

1. Case preparation

Your case must be carefully prepared by your bankruptcy attorney. Although there are many important topics covered by the bankruptcy petition, the most important are your assets and your budget. These are the two items that will have the greatest impact on the percentage of the debt you pay back to your unsecured creditors.

Although all assets are protected in chapter 13 bankruptcy, some assets have value over and above the exemption, and this non-exempt amount sets a minimum that must be paid back to your creditors. This is what is commonly known as the “chapter 7 test” in the case.

The budget determines how much you can actually afford to pay each month. In order for your plan to be confirmed, the Court must find the plan to be feasible, meaning that you can actually afford the plan payment. Also, the Court must determine that you are paying your full “disposable income” to your creditors for the three to five year duration of your plan. Disposable income is defined as your net income minus your expenses. While this may seem like an easy equation, it is not. There are few cases where your disposable income is ideal. In some cases, you may not have enough disposable income at first glance to afford the plan. In others, you may show too much income to eliminate much of your debt. However, if your case is analyzed correctly, there is almost always a good game plan to make your budget work.

Your plan must also address treatment of debts other than unsecured creditors. The most important of these are mortgage and property taxes (if you are behind on these) and car payments.

Chapter 13 will give you five years to pay back mortgage and tax arrears. In the Buffalo Division, mortgage arrears are paid with interest. In the Rochester Division, mortgage arrears are paid without interest. Tax arrears must be paid with the interest rate required by the Municipality. However, in the Buffalo Division, we can pay tax arrears with a lower rate of interest if necessary to make the plan payment more affordable. This is not an ideal solution because it means the client will have the pay the accumulated interest when the plan is over. However, in some cases, it is the only way to make the plan feasible.

2. Filing the case

All cases are filed electronically. As soon as the case is filed with the Court, you are protected by creditors by what is known as the “automatic stay.” This the the most powerful tool of bankruptcy, and it is the automatic stay that literally stops creditors in their tracks from actions such as foreclosures, repossessions, garnishments and evictions.

A few days after the case is filed, the Court will schedule your court hearings. The first hearing will be held with the chapter 13 trustee assigned to your case. In Buffalo, the Chapter 13 Trustee is Julie Philippi, and in Rochester the Trustee is George Reiber. They are both very fair and decent people. Although they obviously have a job to do for creditors, they will always treat you with respect and dignity through this process, and their goal is to have your case approved by the Court. The second hearing is your confirmation hearing.

3. Confirmation

Almost all cases are ultimately approved by the Court. However, approval — formally known as “confirmation” — is not automatic. Both creditors and the Trustee have significant input on your case. Creditors have the right to file objections, and often do. However. most objections are easy to resolve and address the amount that is owed or the value of an asset rather than your basic right to be in bankruptcy. The Trustee will focus on the chapter 7 test and disposable income issues addressed above. Once any creditor and trustee objections are resolved, your case will be presented to the Judge assigned to your case. Although the Judge can and sometimes does raised independent concerns about the case, in most cases, they defer to the Chapter 13 trustee because they know the trustee will be thorough in making sure that the case meets the requirements of chapter 13.

Once the case is confirmed, no creditor can change your plan unless there is a fundamental change in your circumstances. The most common of these are defaults in mortgage or plan payments. Your plan payment can also be modified up or down if there is a significant change in your household income.

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 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.