Chapter 13 Bankruptcy - Thomas H. Richards Law Offices

What is a Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a court supervised payment plan whereby you make a stream of monthly payments to a Chapter 13 bankruptcy trustee. The payment is based on what you can afford according to your income and your household expenses. Chapter 13 bankruptcy has two basic requirements: first, you must pay through your Chapter 13 bankruptcy plan to your unsecured creditors all of your disposable family income until your creditors are paid in full or for three (if your income is below a certain level) to five years, whichever comes first, and second, you must pay your unsecured creditors at least as much as they would receive from your non-exempt property if you filed a Chapter 7 bankruptcy.

Advantages of a Chapter 13

Chapter 13 has certain advantages over a Chapter 7 bankruptcy. For example, Chapter 13 bankruptcy permits debtors to modify or eliminate some secured debts. Also, a Chapter 13 bankruptcy can stop a foreclosure and give you time to make past due mortgage payments. If your home is worth less than what you owe on your first mortgage, any second mortgage or third mortgage can be eliminated through a successful Chapter 13.
The Chapter 13 bankruptcy petition requires a list of your secured debts separately from unsecured debts. Secured debts will be paid through your Chapter 13 Plan unless you surrender the secured asset. You must provide your bankruptcy attorney complete information about your secured debts including each creditor’s name and address. In a Chapter 13, you have the option to surrender collateral (such as a house or car) securing a secured loan. You may be able to pay some secured debts outside the plan if (a) the account is current and (b) the debt is paid by automatic deduction initiated by the creditor (not through bill pay) and has been paid that way for at least six (6) months.

Interest Rate On Car Loan. Chapter 13 bankruptcy may permit you to lower the interest rate on your car loan to current market rate. You can object to a claim filed by your car lender if the claim includes an interest rate above the applicable market rate.

You can file Chapter 13 in Utah bankruptcy court only if you otherwise qualify to file bankruptcy in Utah. Unsecured debts include personal loans, medical bills, and credit cards issued by banks (such as Visa, MasterCard, American Express, or Discover) and other credit cards used to purchase consumable items such as clothing, food, vacations, etc. Secured debts include those debts where the creditor has a security interest in your property to guarantee payment. Examples of secured debts include mortgages, car loan, loans from finance companies (usually secured by household items), furniture, computers or electronics. If you purchased store goods using a store credit card, such as a card from RC Willey, Best Buy, etc., the store probably has a security interest in certain items purchased, which makes the store a secured creditor.

Tax Refunds

In a Chapter 13 bankruptcy, you must timely file all income tax returns due before and after the filing date. Failure to file any tax return is grounds for dismissal. If you need an extension of time, your attorney must file a motion and submit an order to the Court before the date the tax return is due (usually April 15). Income tax refunds are assets and must be surrendered to the Chapter 13 trustee during your Chapter 13 plan. The Chapter 13 may permit you retain a tax refund if you can demonstrate a need, such as a required medical procedure, paying property taxes, unexpected home or vehicle repairs, etc. Before applying to keep your refund, you must provide the Chapter 13 trustee with a copy of your tax return, the tax refund check, and a request form (available from your attorney).

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