Chapter 13

Published on: October 13, 2011

Stripping Mortgages in “Chapter 20” Bankruptcy

“Chapter 20” is the informal name given to the unique situation that occurs when a debtor files a Chapter 7 bankruptcy to discharge their unsecured debts and follows up that bankruptcy with a Chapter 13 (7+13=20) to deal with other debt issues.

A debtor cannot receive a discharge under Chapter 13 if they received a discharge in a Chapter 7 in the last four years per 11 U.S.C. 1328(f)(1). However since discharge is obtained at the end of a case, rather than at the beginning, a Chapter 13 case can be filed the day after the debtor receives a Chapter 7 discharge so long as the Chapter 13 is going to last at least the next four years.

Many people know that a Chapter 7 can usually only be achieved by passing the “means test”, but not a lot of people are aware that one must “qualify” for a Chapter 13 as well.

Under 11 U.S.C. 109(e) a debtor wanting to file a Chapter 13 must show that their secure debts are less than *$250,000, and that their unsecured debts are less than *$750,000 to file under Chapter 13.

If someone’s debt exceeds the limits for Chapter 13, but they make too much money to pass the means test and file a Chapter 7, they are often forced to file a far more expensive Chapter 11. One of the purported benefits of the “Chapter 20” is the ability to discharge some of the secured and/or unsecured debt in a Chapter 7, then follow that up with the desired Chapter 13.

An opportunity unique to Florida is the filing of a Chapter 7 to discharge secured/unsecured debts, but retaining the homestead. Then, the debtor files a Chapter 13 and uses lien stripping to remove the second mortgage. As long as the case is proposed in good faith they will leave the Chapter 13 free of their unsecured debts and will only have to pay their first mortgage to keep their house. This can save the debtor tens of thousands of dollars and give them a better chance of making it through their Chapter 13 plan.
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Published on: October 13, 2011

I Would Like To File Bankruptcy. What’s Next?

By David M. Goldman

If you would like to file for bankruptcy, come in and speak with our Jacksonville Bankruptcy Attorney during a free consultation. Call 904-685-1200 to schedule an appointment that is convenient for you. During the consultation, the attorney will discuss your particular situation. Next you need to fill out a bankruptcy questionnaire, which will aid us in drafting your bankruptcy schedules. You will be given this questionnaire at your consultation and can fill it out at your leisure. Before we file for you, you will need to complete your credit counseling. There are many different online sources that offer this service. If you supply them with our fax or email address, they will send over a certificate after you have completed your counseling. After we have drafted your schedules, you need to review them to make sure that they meet with your satisfaction. Then we can file your case!

The process is designed to be convenient and as seamless as possible. Contact our Jacksonville Bankruptcy Lawyer today to get started!

Published on: October 11, 2011

The Classification of Debt

By David M. Goldman

Debt can be classified as secured, unsecured, or priority. A secured debt is one that is collateralized by property. This means that if you default on the debt, the creditor can take the property that secures the loan. Your mortgage loan is probably secured by your home. Your auto loan is probably secured by your auto.

An unsecured debt is when you make a promise to repay the debt, but the debt is not secured by any collateral. If you default on the promise, the creditor cannot take your property without obtaining a judgment.

A priority debt is a debt that is entitled to repayment ahead of other debts that you owe. Taxes and some attorney fees are priority debts. A list of priority debts can be found in 11 U.S.C. §507.

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Published on: October 11, 2011

Can you pay off a Chapter 13 to end it early?

By David M. Goldman

For those of you who don’t know, a Chapter 13 requires you to make payments to your creditors, typically from 3 to 5 years. What most people don’t know is that there are two different payoff schemes in a Chapter 13, the Disposable Monthly Income (DMI) plan and the 100% plan. Which plan you get depends on the facts of the situation but it basically works as follows:

In a DMI plan, your monthly payment to the trustee for unsecured creditors is calculated based on your monthly income minus the established by the IRS reasonable and necessary living expenses allocated to your family size. The idea is that you get to keep enough money to live, which is important, but that any money you earn in excess of living must be paid to your creditors. This is the more difficult plan to succeed in, as it requires you to go a number of years living off of the IRS standard, which requires a strict budget. This plan cannot get paid off early unless it’s first transformed into a 100% plan, which would only happen if you had a significant increase in income.

In a 100% plan, your monthly payment to the trustee is calculated based on your total debt rather than your monthly income. We add all of your debts together, add 10% to pay the trustee (see how the bankruptcy trustee gets paid), and divide the total by the number of months you need to pay (typically 60 months/5 years). This payment is less than what your DMI payment would be. If the payment is higher, then you should be a DMI plan instead of a 100% plan. Since you’re paying 100% of your debts in this plan, you can pay off your bankruptcy early.

When in a Chapter 13 bankruptcy you have an ongoing obligation to report any increase or decrease in your gross income. You also must annually provide a copy of your tax return to the trustee. Changes in your income will require recalculation of your plan, which can increase or decrease your plan payment. Changes in your income can also mean the difference between your being a DMI plan and a 100% plan.
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Published on: October 10, 2011

Debts That Are Not Dischargeable

By David M. Goldman

Most debts are dischargeable in bankruptcy. However, there are a few debts that are not:

1. Debts arising from fraudulent conduct 2. Government-backed student loans (unless severe hardship can be shown)

3. Debts stemming from death or personal injuries related to your operation of a motor vehicle while intoxicated 4. Certain taxes and fines 5. Some debts not listed on your bankruptcy 6. Domestic support obligations (alimony, child support, etc.)

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Published on: October 7, 2011

What Should I Do If I Cannot Make My Chapter 13 Plan Payments?

By David M. Goldman

If you find that you cannot make your payments under your confirmed Chapter 13 Plan, you should call and write your trustee’s office and let the trustee know when and why you cannot make your payments, and whether the situation is temporary or permanent. If it is temporary, the trustee will usually agree to give you time to catch up. If, however, you permanently cannot make your Plan payment, the trustee may move to dismiss your case or convert your bankruptcy to another chapter. If your situation is permanent, there is another solution. Your Jacksonville Bankruptcy Attorney can file a motion with the court to modify your Chapter 13 Plan payments. Call us today to discuss your case.

Published on: October 6, 2011

Can Legal Fees Be Included In My Chapter 13 Plan?

By David M. Goldman

Yes, legal fees can be included in your Chapter 13 Plan. Legal fees owed to the attorney filing your case are oftentimes put into the Chapter 13 Plan. This can help you afford to file sooner in most cases, which may be in your financial best interest. Here at Law Office of David M. Goldman, we can work with your budget to help you afford to file your bankruptcy.

Legal fees from past cases can sometimes be discharged in your bankruptcy. Legal fees that are not dischargeable can be those that you are dictated to pay in an Order signed by a judge, and sometimes legal fees stemming from family law cases. To see if your legal debt can be discharged in a bankruptcy, contact a St. Augustine Bankruptcy Attorney today to discuss your specific case.

Published on: October 5, 2011

Debts in Bankruptcy

By David M. Goldman

There are three classifications for debts in a bankruptcy. They are: Priority debts, Secured debts and Unsecured debts.

Priority debts are generally not dischargeable, they include debts like those to the IRS, domestic support agreements and penalties for death or personal injuries arising from DUI offenses (If you do have a DUI scenario that sounds like this, please call our office to speak with a Jacksonville DUI Attorney as it is easier to defend the DUI liability than trying to discharge it in bankruptcy). You will continue to owe Priority debts after a Chapter 7 as well as after a Chapter 13 until or unless they are paid off.

Secured debts are monies owed pursuant to a purchase contract, such as a car with a purchase money security or a house with a mortgage. A debtor has three choices when it comes to secured debts in a Chapter 7 bankruptcy:
1. Surrender. The debtor can surrender the secured asset to the creditor to satisfy the debt.
2. Reaffirm. The debtor can offer to the creditor a new contract to allow them to keep the property- typically this is done with the same initial terms as the original contract. It is important to remember that this is an offer to reenter the contract, the creditor is not obligated to agree, though they usually do as long as payments are up to date.
3. Redeem. The debtor can pay the creditor the market value of the secured asset and keep the asset. Since market value is often less than the value in the secured instrument, this is an attractive choice, but it is rarely used because the money is owed at that time- while the debtor is in bankruptcy.

Secured debts in a Chapter 13 are treated differently than in a Chapter 7. In a Chapter 13 the debtor can either surrender the asset or continue to pay on it through their bankruptcy plan. Chapter 13 offers the unique ability to “catch up” on arrearages over the life of the plan, so payments on a secured asset in a Chapter 13 need not be up to date and the creditor has little choice but to allow the debtor to make up the money owed over the length of their plan. There is also the possibility of doing a “Cram-Down” as outlined in my earlier article on Cram-Downs.

Unsecured debts are monies owed with no security interest, such as credit cards, payday loans, etc. These are generally eliminated in a Chapter 7 bankruptcy. In a Chapter 13, secured creditors may get very little (though never less than they would get in a Chapter 7), they may also get paid off entirely, it depends on the kind of repayment plan your debt and disposable income requires.
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Published on: October 4, 2011

Bankruptcy and Divorce

By David M. Goldman

Whether coming before a marriage begins or after a divorce, bankruptcy is all too often connected to matrimony in some way. Jacksonville, with 13% of it’s population having been divorced at least once and over 11,000 bankruptcy filings a year, there’s no surprise the two are connected.

Many couples fail to consider how bankruptcy can be effected by their co-habitation. Because qualifying for a Chapter 7 bankruptcy often requires that the couple’s combined income is less than the median income for their family size and people often marry prior to filing bankruptcy, making the an already stressful process more trying.

The first thing I do when a couple enters my office is establish if in fact both need to file. Sometimes all of the debts are in one person’s name allowing us to file one spouse and protect the other’s credit. Other times it’s more advantageous to file both jointly, taking advantage of the “two for one” filing fee and credit counseling costs. There is even the possibility that one spouse take advantage of the “clean slate” benefits of a Chapter 7 bankruptcy, while the other avails themselves of the potential reduced interest rates and principle balance reductions in a Chapter 13.

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Published on: October 1, 2011

Keeping Personal Property in Bankruptcy

By David M. Goldman

Many people who come through my door want to know if their personal property is at risk of seizure in a bankruptcy. Generally, the answer is no, but it really depends on how much property we’re talking about.

A certain amount of property is exempt in bankruptcy. Which property qualifies as exempt depends on which state you live in and how long you’ve lived there. The state of Florida requires you to use its exemptions if you’ve lived here for two years or more.

Up until 2007, Floridians filing bankruptcy were able to exempt $1,000.00 in vehicle equity, $1,000.00 in personal property and their homestead property. However, many debtors lacked a homestead property, making the bankruptcy rules inequitable to a large class of debtors. Because Florida exemptions favored home owners for so long, an bill, CS/SB 2118 was passed to change the homestead portion of the exemption from “a homestead” to, “a homestead or $4,000.00 in additional personal property.” Oddly enough, it was in part the efforts of Douglas Neway that helped pass this bill. Douglas Neway is the Chapter 13 trustee, the very person whose job it is to attempt to collect money on behalf of the creditors.

If you are in a Chapter 7 bankruptcy and your personal property exceeds the exempt amount, we can offer the trustee a “buy back” plan. In one of these plans, we offer the trustee a manageable monthly payment to allow you to retain your property. If you don’t or can’t pay the monthly payment, you must surrender the property or have your discharge revoked. In a Chapter 13 the “buy back” option is automatically accounted for in the Chapter 13 payment plan.

Another way we have been keeping personal property from the hands of the trustee is by exempting it as property held as, “Tenancy by the Entireties”, a unique form of property ownership that requires a couple to be married couple and debts to be allocated a particular way.
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