Chapter 13 Bankruptcy
The vast majority of all bankruptcies filed in Montana and nationwide are Chapter 7 bankruptcies. Approximately 25% of all bankruptcies filed nationwide, however, are Chapter 13 bankruptcies.
There are three main reasons individuals and couples file for Chapter 13 protection:
1) There income is over the median income in Montana for their size of family. The number is adjusted twice a year, but the current numbers are as follows:
Individual filer - the median income in Montana is $60,032;
Family of two: $72,102
Family of three: $77,793
Family of four: $101,329
If your income for your size of family is over the median, the presumption is that you should be filing Chapter 13. We would prepare what is known as the “means test” to determine what percentage of your unsecured debt (most often far less than 100%) you will be required to repay.
2) You have assets you would like to protect. Most often, all of your assets will be protected by state laws known as “exemptions”. Occasionally, however, there are assets which are not exempt, but you would like to retain nonetheless. You can file a Chapter 13 to protect those assets.
Example: Let’s say you have a $20,000 boat. There are no exemptions for boats in Montana, so if you wanted to keep the boat, you may do so, but we would file a Chapter 13 Plan whereby you would pay your unsecured creditors $20,000, spread out over the next 3-5 years.
3) You have “priority” debts you wish to get under control. There are a few debts, such as back child support and back taxes, which are not dischargeable in bankruptcy. You can file a Chapter 13 to repay these debts ... but do so without additional penalties and interest.
Example: Let’s say you owe $20,000 in back income taxes. Even with a payment plan with the IRS, repayment could take years due to the interest and penalties the IRS tacks on to your bill. Under a Chapter 13, you would still pay back the $20,000 over the next 3-5 years, but you would only be paying $20,000 ... no additional late charges, interest, or penalty fees can be added by the IRS.
Pros of Filing For Bankruptcy
One of the biggest advantages of bankruptcy may be the least tangible – the feeling that you can breathe again. Having your financial world collapse can create pressure that never ceases, much less abates. It can consume your waking hours and ruin your sleep.
The idea that you can have a fresh start through bankruptcy, and that your life may not be ruined, is worth a lot.
Some additional reasons for filing a Chapter 13 bankruptcy
Stop foreclosure – When you file a Chapter 13 bankruptcy, foreclosure proceedings against your home are halted while a payment plan is developed to get you caught up on mortgage payments, including what’s past due. Another option is that the homeowner may decide to sell the house so the lender can receive what’s owed and the homeowner can keep any extra money the sale produces.
Automatic stay – In both Chapter 7 and Chapter 13 bankruptcies, all creditors and collection agencies must temporarily stop harassing phone calls, letters, and the threat of lawsuits until the bankruptcy case is closed. That gives debtors the opportunity to solidify their finances before collection attempts can resume.
Prevent car repossession – By filing for Chapter 13 bankruptcy and making the car part of the court-approved repayment plan, creditors may not repossess the car. In Chapter 7 bankruptcy, the car is at least temporarily secured, but the creditor could go to court and receive an order that allows repossession.
You’ll likely end up paying less than you owe – This is especially true in Chapter 7 bankruptcy, which potentially wipes out all your unsecured debt. Chapter 13 requires repayment of at least some of what you owe, but, as noted above, it is most often less than 100% of your unsecured debt.
