Chapter 13 Bankruptcy

Can You Get A Car In Chapter 13 Bankruptcy

Chapter 13 bankruptcy typically runs three-to-five years. During this time, cars can die and break down. A common concern for Chapter 13 filers is whether or not they can get a new car loan after filing. The answer is "yes", but there are some limitations.

In order to finance a vehicle in Chapter 13 bankruptcy, the attorney of the filer must get Bankruptcy Court permission to do so. This is done by filing a motion and getting a signed court order. You should give your attorney as much heads up as possible that you will need a new car, as preparing this motion can take some time, and the court will need to review it, even if it is filed on an expedited basis. Don't call your attorney at the last minute. You should give him or her a month of notice, if possible.

What will the court consider in deciding whether to allow someone to finance a vehicle in bankruptcy? First, they will need to see that payments in the bankruptcy case are current. If you are behind on the payments, the court will not allow you to take out new debt, no matter how badly you need the car. If you are behind a couple payments, you will need to catch them up.

Second, the court will need a reason that the new car is needed. It doesn't need to be anything dramatic or long-winded. Typical reasons include your old car permanently breaking down or a change in life circumstances that would require a new car (for instance, taking a job outside of the bus line). The court will probably not accept the request if the reason is that you don't like your car, or you want a nicer car. It has to be a necessity.

Third, the court will place limits on how much you can finance, regardless of how much you make. The current limits are $25,000 total financed, and/or a payment no larger than $400 per month. This may limit what you want, but it is likely non-negotiable with the court. A large finance payment will not be permitted.

Once the court grants your motion, you will need to find a dealership that is willing to finance through Chapter 13 bankruptcy. They exist, but they will likely charge a very high interest rates, and you may need to shop around. The interest rates are sometimes over 20%, which can make a car prohibitively expensive in Chapter 13 bankruptcy. For this reason, it is almost always preferable to try and make it through your Chapter 13 bankruptcy with your original car.

After securing financing, a second motion must be filed with the court approving the loan. As mentioned earlier, the court will only approve the financing if it is for less than $25,000 and less than $400 per month. Once this motion is approved, your bankruptcy plan must be amended to incorporate the new payment. Obviously, it will need to be an amount you can afford. You will need to make the payment directly until the payment is made by the Trustee.

If you are married, and only one spouse needs to file, the non-filing spouse may secure financing outside of bankruptcy. This will be much easier, and it will not require you to include it in the bankruptcy. This is something to keep in mind when filing.

You can buy a car in Chapter 13 bankruptcy when the need comes up. But, it must be necessary, and there will be limits to what you can buy. If you are considering bankruptcy and believe this may be an issue, contact us to set up a free consultation.

Chapter 13 Bankruptcy Timeline

Every bankruptcy case is different, especially so for Chapter 13 bankruptcies. However, a common timeline runs through nearly every case. Knowing this outline helps my clients to better understand the process and requirements. Here is a brief overview of the important moments in a Chapter 13 bankruptcy.

The first important moment is the filing of the case. This occurs after all the necessary paperwork and documents have been provided, and a Chapter 13 plan and petition are filed. However, an "emergency petition" can be filed when necessary, allowing the case to be filed before everything is ready. When an emergency petition is filed, all the necessary documents and papers must be filed within 14 days. This is a very important deadline, because the case will be dismissed if it is not met. Therefore, it is important to not file an emergency petition unless absolutely necessary. When a case is filed under normal circumstances, your attorney should file everything within a few days and get nowhere near any of the deadlines.

When the case is filed, a Chapter 13 Meeting of Creditors will be scheduled for (roughly) four-to-six weeks later. The meeting of creditors is discussed in more detail elsewhere in this blog. However, it is only important to note here that appearance at this meeting is mandatory. You will generally be allowed to reschedule once. Missed appearances after that threaten the case being dismissed. It is advisable to make sure you have made the first payment in your plan by the time this meeting is held.

A second hearing, called a "conciliation conference" will be scheduled at the meeting of creditors. You will not be required to attend this hearing. Your attorney will amend your plan (if necessary) in the weeks before this hearing. This will occur if there are new claims to be accounted for or objected to, or if corrections need to be made to your plan. Assuming the amended plan is accepted, the bankruptcy case will be approved on a final basis at this hearing. If not, additional amendments can be made. After the planned is confirmed, you only need to make sure all of the payments are made on time.

Assuming all goes well with the case, the final requirements will occur at the end, or closeout, of your case. You will need to complete the second bankruptcy course, and review a motion with your attorney attesting that you have completed all of the requirements in your case. You won't need to make an appearance, but you will need to be in touch with your attorney. Once the case ends, you may need to start paying your mortgage again. Your attorney will explain the closeout procedure.

Contact us if you are considering filing a Chapter 13 bankruptcy and wish to review the process in more detail. We can set up a free consultation to discuss your situation in detail.

Bankruptcy Options When You Are Behind On Your Mortgage

Many individuals end up in my office when they fall behind on their mortgage. It is a common problem. The most frequent cause is a temporary lose or reduction in employment. Several months of unemployment can quickly lead to a family facing a foreclosure, which are sometimes filed within 3 months of the first missed payment. Fortunately, the Bankruptcy Code can help, whether you want to save the home you have fallen behind on, or if you simply want to walk away from it.

What if you are behind on your mortgage, and you don't want to stay in the home? Chapter 7 bankruptcy can help. When a debtor falls several or more months behind on a mortgage, a foreclosure proceeding will often commence. A foreclosure allows the lender (usually a bank or mortgage company) after a series of court filings, to seize the home, sell it at auction, and then go after you personally if the sale price does not cover all of the mortgage and expenses. Certain lenders and law firms specialize in doing just this.

Homes often sell for very low prices in these sales, and if the mortgage was large, this could lead to a huge "deficiency judgment" against you. The lender will be able to put liens on your property (or future property) or even freeze your bank account. And these deficiency judgments do not go away. However, Chapter 7 bankruptcy can wipe out these deficiency judgments, no matter how large they become. When there is a large deficiency, bankruptcy may be the only option allowing you to go on with your financial life. The process is very straightforward, and you can even continue to live in the home until it is sold at auction. This is often months down the line. As long as you are willing to ultimately surrender the home, Chapter 7 bankruptcy is the perfect option.

On the other hand, what if you are behind on your mortgage and you want to save your home? You will need to file a Chapter 13 bankruptcy. Chapter 13 bankruptcy is more complicated, but it has many benefits. You can catch up on mortgage arrears by paying them back over 3 to 5 years, without interest or further penalties. Spreading out the amount owed over a period of 60 months can make repaying even large arrears feasible. For instance, if you are one year behind on a $1,000/month mortgage, you can catch up the arrears for $200 over 5 years. While this may not be possible if you have not started working, it is often very workable when full employment returns.

Another important feature of using Chapter 13 bankruptcy when you are behind on your mortgage is that it can stop a sheriff sale up until the very moment the gavel goes down, and it does not require negotiation with the lender. Loan modifications are often endless (and useless) endeavors. However, under Chapter 13 bankruptcy, there is no such negotiations. As long as the lender is paid under the terms of the mortgage, and all arrears are accounted for, they must accept the filing. Chapter 13 bankruptcy can help in all but the most hopeless situations.

Contact us if you have fallen behind on your mortgage and you wish to discuss your options. Whether you want to save your home, or surrender it, bankruptcy has an option for you.

Chapter 13 Wage Attachments

Chapter 13 bankruptcies require payments to be made to the Chapter 13 trustee. The trustee then disperses money to your various creditors, in amounts that are determined by bankruptcy law and your bankruptcy plan. How do you pay the trustee? If you are employed, my office is required to file a wage attachment.

A wage attachment motion is filed with the bankruptcy court after the initial case filing. Court permission is required to attach your wages, but this is pretty much a formality. Once the court approves the motion, an order signed by the bankruptcy judge is sent to my office. I then serve the order on the payroll department of your employer, along with other information to make sure they properly identify you.

The wage attachment, once in effect, will deduct money from your pay every pay period. Even though your bankruptcy payment is calculated on a monthly basis, the payments will be deducted each pay period, whether you are paid monthly, bi-weekly, or weekly. The money is directed to the trustee, who actually administers your case payments. This will continue through the completion of the bankruptcy case.

You will be responsible for making any payments not directly deducted from your paycheck. So, if it takes several weeks for your payroll department to process the order, you are still required to make the payment. Contact us for instructions how to do so.

As long as your employment is steady and uninterrupted, there should be no problems with your wage attachment. However, if you change jobs, or lose your job, you will need to inform your attorney immediately. Your wage attachment will need to be terminated (which requires another motion and service) and a new wage attachment must be filed. This should be done as quickly as possible to avoid any gaps in your payment. Once again, payments not made through the wage attachment must be made directly.

Clients are often concerned that the wage attachment will affect their employment in some way. It will not. An employer cannot sanction you, and in practice, they rarely if ever care. Most payroll departments process the orders with no confusion or problems. Wage attachments are not allowed on pensions, or disability payments. In these cases, payments must be made directly to the trustee.

The prospect of a wage attachment sometimes causes trepidation on the part of my clients. However, there is no reason to be concerned. The process is efficient, and secure. Case with wage attachments have much higher rates of success, as they greatly simplify the process. I will be happy to answer any questions related to the wage attachment requirement.

Means Test Update, May 2017

The means test is a six-month income look back that is calculated when filing a bankruptcy. It determines if an individual must repay unsecured creditors in a Chapter 13 bankruptcy. This threshold is determined initially by looking at gross household income and household size. The gross income thresholds are periodically updated by the bankruptcy court for each region, to take into account inflation and other factors. They were most recently updated on May 1st, 2017.

The gross income limits for the six months before filing, above which you no longer qualify for Chapter 7 bankruptcy in most cases, are now the following in Allegheny County (as of May 1st, 2017):

  • Household of 1: $25,569.00
  • Household of 2: $30,635.50
  • Household of 3: $37,509.00
  • Household of 4: $45,410.50
  • Household of 5: $49,610.50
  • Household of 6: $53,810.50
  • Household of 7: $58,010.50
  • Household of 8: $62,210.50

Each additional household member beyond 8 will add $4,200.00 to the threshold.

A few things to point out about this chart. Once again, this is for all household income for the six months previous to filing, including non-filing spouses. Even if a spouse has no debts, or no desire to file, their income will be a part of the calculation if they are married and living in the same household. Pretty much all sources of income outside of Social Security payments is considered income. This includes unemployment, bonuses, retirement distributions, lottery winnings, and rental income. If in doubt, assume it will be income for means test purposes.

Second, dependents are generally determined by their federal income tax status in the family. In short, if you claim a child on your federal income taxes, you can claim them as household members for purposes of the means test. Adult dependents can sometimes be claimed, but you will need to consult an experienced bankruptcy attorney to determine this with certainty.

Finally, remember these numbers are for gross (before tax) income, not net (after deductions) income. If you are above the threshold, but just barely, your attorney can review your deductions to determine your "Disposable Monthly Income", or DMI. This calculation will determine how much, if anything, you must pay your unsecured creditors.

The means test is a moving six month window. Contact us to take a look at your recent income and determine if the means test will be an issue in your case. It may be necessary to wait, or hurry up and file, depending on your recent (and future) income. I will be happy to look at your situation at a free consultation.