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Should I File a Chapter 13?


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Well, maybe.

There are many reasons to file a Chapter 13. Even if you meet the income threshold in your State for a Chapter 7, a Chapter 13 may be more advantageous. If you've filed a Chapter 7 in the last 8 years, you won't have a choice, because a Chapter 13 will be your only option. A Chapter 13 is usually the best option if you own real estate or you wish to protect other assets.

Your attorney should explain the exemptions available to you. There are federal exemptions and nearly all States have their own exemptions. This is an either/or deal. Either you choose the federal exemptions, or you choose your State's exemptions, but you cannot choose both and you cannot cherry-pick and mix-n-match to create your own exemptions. In some States, you have no choice: you must use the State exemptions.

What's the difference? The federal exemption on equity in your home is $27,900. In Ohio, it is $145,425. If you own a home and you live in Ohio, you're gonna wanna use the Ohio exemptions unless there is a compelling reason not to.

A Chapter 13 is a payment plan. You pay a set amount for 36-60 months and then your debts are paid off and those that aren't paid off that can be discharged are typically discharged. That does not include child support, or civil judgments arising from criminal actions, and certain other debts like student loans.

You need to very carefully evaluate the payment plan and consider future contingencies. Bankruptcy mills are notorious for underestimating your monthly payments, because the payment plan is very attractive and key to getting people to sign up for a Chapter 13.

Don't be surprised if you're told you're payments will be $269/month and then the trustee says it will be $754/month.

The majority of trustees are pro-creditor. A minority are pro-debtor and then there are some that are fair-and-balanced for lack of a better term. How do you know which trustee you'll get? You don't. It's a coin toss, unless you have a small court in which case there's only one trustee so it doesn't matter. In Ohio, the Southern District has three courts (Columbus, Dayton, and Cincinnati) with multiple trustees, and the Northern District has 5 courts (Toledo, Cleveland, Akron, Canton, and Youngstown.)

As shocking as it may be, there are people who had $30,000 in debt that ended up paying $40,000 to $60,000 by the time their payment plan ended. They actually lost money.

If your household income increases, the trustee will move to increase your payments. If your household income decreases, the trustee will not move to decrease your payments, but your attorney can file a motion in an attempt to decrease them. The motion may or may not be granted. It all depends.

You must have an income to file a Chapter 13. That income can be social security retirement, social security disability, or worker's compensation, or income from a job. It doesn't matter, but your payments under social security retirement/disability or worker's comp may be unbearable.

Note that you have a minimum monthly payment. In the event your household income decreases significantly or you lose your job, you are totally utterly hopelessly screwed.

If your attorney files the proper motions, you might be able to miss 1, 2 or even 3 payments, but after that your case will be dismissed. Creditors and debt collectors will be watching PACER and the minute the dismissal order is posted, they'll be all over you like white on rice.

Your missed payments are mandatory. The trustee will increase your monthly payments to cover the missed payments. Add to that your attorney's billable hours, plus trustee fees, plus interest and it all has to be paid within 60 months and your monthly payment might balloon quite a bit to make your life unbearable.

The contingencies I mentioned include the health of the wage earners in your household.

If one of the wage earners plans on retiring, or filing for social security disability, or going on worker's comp, or missing lots of work due to health issues, or quitting their job due to health issues, you need to carefully weigh that because you are effectively locked into a minimum monthly payment regardless of your income. In fact, if your income is too low, you wouldn't even be able to file a Chapter 13.

Let's talk about some other considerations.

Bankruptcies are filed in federal courts. Civil actions for debts are filed in State courts. Federal court. State court. They are not the same.

When you retain an attorney, you retain them for a specific purpose that is defined in either your flat fee agreement or your hourly fee agreement.

For example, in Ohio for an OVI, the going rate is $750. That is a flat fee agreement and your retainer contract will specifically state that you paid $750 for OVI plea negotiations in the Clermont County Municipal Court. Once plea negotiations have ended, whether you accept the plea or not, your attorney is no longer legally obligated to represent you. If you want to take the OVI to trial, you'll have compete another retainer and fork over $1,500 to $2,500 for that.

Let's say your spouse files a CPO (Civil Protective Order) against you. In Ohio, the going rate is $750/flat fee. 10 days later, your spouse files for divorce. The attorney has no legal duty or obligation to represent you in the divorce. They're only legally obligated to represent you for the CPO. If you want the attorney to represent you in the divorce, you'll have to fork over another retainer fee.

Why am I telling you this?

When LVNV Funding, or Portfolio or Credit Acceptance file a lawsuit against you, it will generate advertisements from the bankruptcy mills. The letters are carefully crafted to say they're protecting your rights under Title 11 United States Code. Title 11 is the bankruptcy code and bankruptcy is federal court, not State court.

You call the number and hear the script and you sign up for a Chapter 7 or 13. You can only afford $200/month on the payment plan to pay the retainer fee, which includes the filing fee, court costs and what the attorney can charge to prepare your petition as limited by Congress. In Ohio, that's about $1770 so it will take you about 8 months to pay off the retainer and they will not file your petition until the retainer is paid off, excepting certain special circumstances.

Imagine your surprise when a month later you get a notice from the court saying that because you failed to appear, Plaintiff has filed a Motion for Default Judgment.

WTF? Remember, you retained the bankruptcy mill to file a bankruptcy petition in federal court. You did not retain them to defend you in the State court action.

A few weeks later, or maybe a month later, you get a garnishment order from the State court.

WTF? Remember, you retained the bankruptcy mill to file a bankruptcy petition in federal court. You did not retain them to defend you in the State court action.

Now your wages are being garnished. What can you do? You have 3 options:

1) Suffer the garnishment and continue to pay your monthly retainer fee

2) Cancel the bankruptcy. It's unlikely you'll be refunded any money (and you probably owe them money)

3) Scrape together the money to pay the balance of the retainer fee and file your bankruptcy petition

In some instances, the judgment will be paid off through garnishment before you can file the petition, in which case it's probably stupid to continue with the bankruptcy, so cancel and cut your losses.

The garnishment you paid before you filed your petition is gone. You'll never get it back so don't even think about it.

If you're filing a Chapter 13, quite often, so long as you've paid enough money to cover the filing fee and court costs, they'll do an "emergency" filing of your petition, but that will take 3-5 days minimum, and that assumes you have provided the law firm with all of the documents necessary to complete your petition and all of the documents the court requires, and that might take several weeks.

When your Chapter 7/13 petition is filed and the stay order goes out, your garnishment may not stop, even though it's supposed to stop.


Understand that once the State court issues the garnishment order, it is done and it's hands are tied and it can do nothing so don't waste your time with them. There are two parties involved in a garnishment, your employer and the judgment holder, and 3 parties if your employer uses a 3rd party payroll processor like ADP, Paycor, Paychex etc. so it's the judgment holder, your employer and the 3rd party payroll processor.

The policies of 3rd party payrolls are many and varied and suffice to say some are loose and some are tight. Some will stop the garnishment as soon as they are notified of the stay order. Others will stop the garnishment only after they have a copy of the stay order in their hands. Others have a very formal process which requires notifications and signatures and what not.

The point being it is possible your next 1-4 paychecks may be garnished, so never count your chicks before they're hatched.

If you filed a Chapter 7, you'll get that money back but not tomorrow, or the next day, or the day after that or even that month. The trustee will recover the money and issue you a check, so plan on a minimum of 60 days. If you want to drag that out to 3 or 4 months, by all means, call the trustee's office every day demanding you get your money.

If you filed a Chapter 13, you'll get the money back and you won't get the money back. Why? The trustee will recover the funds and then apply them to your payments, so you'll never actually touch the money.

An "emergency" filing of a Chapter 13 may also be done to stop a sheriff's sale, which may actually be a sheriff's sale, or it might be a public auction or private auction.

They can also do an "emergency" filing if your car is repo'd. Yes, if your is repo'd they can usually get it back within 2-4 weeks. Even if your car is repo'd and two weeks later you decide to pony up the money and file a Chapter 13, they can get the car back if you want it. That can take a while. Depending on the finance company, your vehicle may be auctioned locally, or it might sit in a lot for a time and then be transported to another city or even another State and auctioned. Some finance companies are never really sure where the vehicle actually is, so tracking it down can take some time.

While you are in Chapter 13, you are forbidden to take on any new debt without the express prior written consent of the trustee, and if you haven't figured it out yet, it could take 4-8 weeks for the trustee to grant his/her prior written consent.

How does that play out?

If you can pay cash for anything, you're good to go. If you don't have the cash, you can only dream about it.

You're driving to work in the trustee's car --and it is the trustee's car and not yours -- and the dreaded Check Engine or Service Light comes on and your car dies.

Hopefully, you have Triple A or your insurance has roadside assistance, otherwise you'll have to pay cash to tow the car because you can't use your credit cards.

Also, hopefully you can walk to work or someone can drive you, because paying for Uber, Lyft or a taxi is gonna get real expensive real fast, and riding the bus --if that's even an option-- is gonna suck.

Get a written repair estimate from the mechanic. You're gonna need that. The advantage of a small law firm is you'll probably get to talk to your attorney that day. It might be a week before you get to talk to an attorney at a bankruptcy mill. Your attorney will discuss the wisdom of paying $2,700 to repair the vehicle and then consult with the trustee.

If the vehicle is not worth repairing, the good news is you'll get another car although not necessarily a new car.

Once you have a buyer's order, your attorney can file a Motion to Incur Debt and since we already know the trustee won't oppose it, the judge will grant it but if you haven't already guessed that could take several weeks to a month or two without a car.

The good news is the trustee will not pay 25% interest for his/her car -- which is still less than the "0%" financing the idiots think they're getting from Toyota and others.

Here's where a little Chapter 13 strategy comes into play.

You rent (meaning you don't own a home) and you're mired in debt but you need a new/newer car and you get the sub-prime rate of 25%. You buy the car, suck it up for 6 months and then pony up the money to file a Chapter 13.

The trustee will not pay 25% for his/her car. They'll knock that down to about 5.25% which will drastically lower your car payments and rolled in with your other debt, you might have one low monthly payment and be done in 36 months or maybe 48 months and you can move on. The good news is if a few years later your life goes terribly wrong, you can still file a Chapter 7 or another Chapter 13.

So, you're sitting on the trustee's couch watching the trustee's TV and water is leaking from the trustee's roof onto you. Take photos. Get at least 3 estimates from roofing contractors and submit it all to your attorney so they can file a Motion to Incur Debt to get the trustee's roof repaired.

Same-same if the trustee's water heater goes out or the fridge is on the blink or the septic tank is FUBAR.

Horror story: Furnace went out last week of November. It was mid-February before they got the trustee's approval and had a new furnace installed, so the family scrambled to heat their home all Winter.  I mention that because if you're a homeowner, it might behoove you to have a home-inspection, and have HVAC people check your HVAC system so you can prepare for contingencies.

Under no circumstances will you spend the trustee's federal or State tax refunds.

You will turn over your federal and State tax refunds to the trustee, and the trustee will decide what amount, if any, you're allowed to keep.

The trustee will make that decision when they make that decision and they won't make that decision before they make that decision.

If you want to delay that by a long time, then call the trustee's office every day demanding to know how much of your refund you'll get to keep. If you want to rack up your legal fees and balloon your monthly payments, call your attorney every day demanding to know how much you'll get to keep or when the trustee will make their decision.

I mention that because a lot of people spend their tax refunds even before they filed their returns and the bankruptcy mills are lax about sending timely notices to you not to spend your tax refunds and to submit your returns, W-2s and 1099s so they can be redacted and submitted to the trustee.

"I already spent it." No problem. You will submit to the trustee a copy of your federal and State tax returns along with copies of W-2s and 1099s. The trustee will send you a letter letting you know how much you have to surrender to the trustee. You will surrender that amount now, this minute. Do not even make the trustee add that to your monthly payments, because, remember, you're paying trustee fees and interest.

Horror story: Idiot blew his $6,600 federal refund and $2,100 State refund. Trustee demanded $6,600 federal refund and $1,800 of the State refund right now, this minute. Idiot couldn't pay it. Add it to the monthly payment plan would have extended it beyond the 60-month limit and so the only way to avoid that was to increase the monthly payments. Idiot defaulted on monthly payments and 4 months before the discharge would have happened, idiot's case got dismissed. Sucks to be stupid.

Idiosyncratic considerations.

Whether you file a Chapter 7 or 13, you will find yourself locked out of all your on-line accounts, even your bank accounts.

What do I mean? Banks are not necessarily creditors and if they are not a creditor, they will not be on your creditor matrix and so will not get a copy of either the stay order or the creditor matrix.

To avoid any potential liability, the banks will shut down your automatic bill-pay in the event they pay a creditor on your creditor matrix. You can still pay your bills on-line through your bank, but you'll have to do it manually, so make sure you have a list of your bills and how they are paid. Worse still, you are represented by an attorney which means legally no one is allowed to talk to you. They have to talk to your attorney unless you tell your attorney to grant them permission to talk to you. Some banks erroneously interpret that as they are not allowed to talk to you, even though they are not a creditor and can continue to conduct business with you normally. Even though your bank isn't a creditor, believe me, they will know you filed bankruptcy.

If your home/car is included in your Chapter 13, payments aren't typically a problem, but if you exclude either or both, then you need to be very clear about who services those debts and who to pay and stay vigilant that they are receiving your payments and properly crediting your account(s).

It is not uncommon for people to file a Chapter 13 to stop a foreclosure only to find out that the reason they're in foreclosure is that even though they were making payments, the paper was swapped and nobody bothered to tell them or the mortgage servicer and so they were making payments but their account was not being credited. Yes, the entire mortgage industry is a nightmare.

The trustee will decide how you make your payments. In most cases, this will be a wage deduction through your employer, but others use an entity called TFS.

TFS is notorious for not making payments and not properly crediting accounts, so make certain your payments are deducted each month from your bank account and that TFS paid it on time and credited your account, because if the trustee does not receive payment, they don't care if it was your fault or TFS.

Whether filing a Chapter 7 or 13, you are required to provide a record of 7 months of income leading up to the date of filing of your petition from all wage earners in your household whether you are married to them or not and whether they are related to you or not, and it doesn't matter if you're filing individually or jointly, in addition to 2 months of bank statements leading up to the date of filing.

Under no circumstances will you attempt to hide income or assets. Best case scenario is your petition gets dismissed. Worst case scenario is you get slammed with federal criminal fraud charges.

"They'll never know." Oh, yes, they will.

You are required to submit a copy of your lease, or your mortgage and deed. Your significant other or room-mate is on the lease.  Oooops....you just committed perjury.

And if not those, then bank statements, tax returns, vehicle titles, life insurance beneficiaries etc etc and all the many documents you required by law to submit.

Did I mention the US Attorney's Office conducts the financial analysis? Well, now you know.

Your income is so much each month and your bank statements plus your bills tell the story. The numbers don't add up. You're spending more than your income allows so obviously you have another source of income which you failed to declare. Congratulations, you just committed perjury. Your attorney is an officer of the court and cannot suborn perjury and is not going to back your play on hiding income/assets no matter how you try to justify or rationalize it.

That includes crypto-currency. A colleague told me her client bought a few $1,000 in bit coins I think it was. Then life happened and the client forgot about it literally. The trustee was forgiving because the client was able to prove that he hadn't accessed the account in over 6 years and the initial purchase was the only transaction. Things like that happen occasionally. If it happens to you, bring it to your attorney's attention immediately so they can put out any resulting fires.

Shortly after you file a Chapter 13 petition, depending on where you live in the US you'll have what's called a creditor's meeting or a 341 meeting (for Section 341 of the bankruptcy code).

One or more of your creditors may object to the proposed payment plan, and since the majority of trustees are pro-creditor, they might object as well.

I realize some of you might think that cable/satellite TV, streaming services, internet, going to Starsucks or Cup-of-Joe's every day and eating out 60x a month and always having the latest iPhone and tech gadgets are entitlements and rights. The trustees don't see it that way, because they're not. Those are privileges you earn by getting the education, training or experience necessary to obtain a job that pays enough for you to afford them assuming you can manage your financial affairs.

In Chapter 13, you'll have to tone down your Livin' Large Life-Style quite a few notches. Some people can deal with it, and even welcome it, but some people cannot.

If you cannot, then Chapter 13 is probably not for you and even less so if you don't have a wage deduction. With a wage deduction, the money's gone up front. People paying through TFS have a habit of ultimately missing trustee payments or defaulting on a car note or mortgage (if they were excluded) and not surprisingly, a lot of people give up on a Chapter 13 midway through because they think their suffering is legendary.

You're require to take two financial literacy courses, one pre-petition and one post-petition. These are mandatory, not optional. Note that the pre-petition course is only valid for 6 months. If you're on a payment plan that is 6 months or longer, it doesn't make sense to do it until 30 days before you're ready to file. Your attorney will arrange the post-petition course for you. Yes, fraudsters will send you threatening letters that your case is about to be dismissed because you didn't take the post-petition course. Ignore them.

There are a lot of resources, but it's best to avoid NOLO, Justia and attorney websites. If you can talk to someone similarly situated who file a Chapter 13, that would be ideal. Similarly situated means if you rent, you don't talk to a home-owner, and vice versa.

Since Congress limits what bankruptcy attorneys charge, there's no point in "shopping" around. Instead, focus on accessibility, experience --especially if your situation is complicated --  and the process itself. In Ohio, the going rate is $250/hour for attorneys and $65-$95/hour for paralegals. High-powered law firms may charge more. Some law firms may charge less, around $200/hour. There are even some that charge $150/hour because their student loans are paid off and they were never in it for the money. Rates will be higher or lower in your State depending on the Cost-of-Living in your State.

Incredibly enough, filing a Chapter 13 may actually increase your credit score by anywhere from 3 points to 165 points, but that also depends on True-FICO or Phony-FICO and how it all actually turns out. In rare cases, the credit score will decrease.

Sadly, our crystal balls break when we're born, and some people get a few curve balls while others get lots of curve balls, plus sliders, and knuckle balls, and things go awry. There's no shame in filing bankruptcy -- except for the repeat filers who abuse the system and make the restivus pay more -- but there is shame in not recognizing or admitting you're in over your head. The laws are there for you to help you protect your assets. Use the laws if you need them.








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@TowerRat, I've seen your name before . . . maybe at the "other" forum, DB, that is no more?  Good to have you here.

You make a lot of good points.  I have read that about 2/3 of Chapter 13 bankruptcies end up failing.  And even in a Chapter 7, everything you own becomes part of the bankruptcy estate, which is under the trustee's control, not yours.  And the trustees get "a piece of the action," meaning they get a 10% fee when they sell an asset to pay creditors.  

BK works for some people, but not for everybody.  But it's sold as a one size fits all solution to debt problems.  Fortunately sites like CIC exist to help people deal with debt in different ways.

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