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.

Calculating Your "Income" For Bankruptcy Purposes

The definition of "income" is pretty straightforward in most contexts. It's generally somewhere along the lines of, "the money I make at work" or the money received from regular benefits such as Social Security or a pension. It seems simple enough.

However, things get a bit more confusing in the bankruptcy context, as they normally do. Income is important in bankruptcy because it determines whether you can file a Chapter 7 bankruptcy, or whether you must file a Chapter 13 bankruptcy (and if so, how much you must pay). The bankruptcy "means test" looks back at the six months before filing to determine your income during that period. So, you just need to look at your paystubs or benefit statements, right?

Nope... not that simple. "Income" as determined by the bankruptcy means test has a very broad definition. Yes, you will need to look at your traditional income, and your paystubs are a good start. But, "income" also includes one time payments, commissions, and bonuses. Income includes household contributions from friends or family members (something few people would think of as "income"). It includes lottery and gambling winnings. It also includes rent, dividends, interest, and royalties, or one time distributions. Most confusingly, it can include alimony or child support (which is normally not taxable), or even inheritances! The definition is so broad it occasionally precludes people in great need of debt relief from filing.

Another confusing aspect of this look back period is that the money is considered earned when it goes into your bank account, not when you actually do the work. So, if you perform a service in December, but are not paid the commission until the next April,  it would be considered "income" in the look back period from August (for which April is in the six month look-back period). The means test can be counter-intuitive, so it is very important your attorney explains it and carefully reviews all income. If in doubt as to whether something is income, tell your attorney!

There are a few exceptions to what is considered income that can work to your favor. Social Security payments are not considered income. Loans are also not income, and neither is your tax refund. But, once again, assume any money coming into your possession in the last six months to be income. An experienced bankruptcy attorney will not lead you astray.

So, what can be done if a one time bonus or windfall is included in your look back period, preventing you from filing Chapter 7 bankruptcy, or artificially distorting your Chapter 13 payment? Wait! No... I don't mean wait for my answer. I mean wait to file!

Proper bankruptcy planning is an important part of my job. Sometimes it is necessary to wait before filing. If you wait a few months, these distorting payments will no longer be part of your look-back period. It's just good planning.

On the other end of the spectrum, sometimes you need to hurry up! If you know that you will soon receive a large bonus at work, you will want to file before it becomes your "income". Remember, it's not when you do the work, it is when you receive the payment. You can use that distinction to your advantage.

Contact us if you want to discuss whether or not your income (or your "bankruptcy income") prevents you from filing. I'd be happy to walk you through this sometimes confusing world!

Stopping a Sheriff Sale with Chapter 13 Bankruptcy

The culmination of the foreclosure process is the sheriff's sale. It is the final step where your home is literally taken from you and sold to a third-party. The very idea is terrifying to contemplate...someone else taking possession of your home. Fortunately, right up to the moment the sale occurs, Chapter 13 bankruptcy can be used to save your home.

How does Chapter 13 bankruptcy fix this dire situation? The Bankruptcy Code "automatic stay" stops the sheriff sale from proceeding. The automatic stay prevents creditors from taking any legal action (or continuing any legal action) against a debtor. Once the actual sheriff sale takes place, it is too late. The automatic stay only stops sheriff sales that have not yet happened. But, if a Notice of Bankruptcy is properly forwards to the sheriff's office before the sale occurs, it should be stopped. (NOTE: It is important to not wait until the last moment, as the complicated requirements of Chapter 13 bankruptcy and the need to serve the sheriff may make last second filings impossible.)

But, the automatic stay alone does not save your home from sheriff sale. If you cannot submit a feasible Chapter 13 bankruptcy plan, your case will be dismissed, and the sheriff sale will again go forward. In order for your Chapter 13 plan to be considered feasible, you will need to show enough income to catch up on all of the arrears, legal fees, interest, and penalties, as well as show you will be able to make the payment going forward.

Chapter 13 bankruptcy is often a great option for individuals who lost their job or source of income for a period of time, subsequently fell behind on their mortgage, but are now at full income once again. Chapter 13 bankruptcy will allow all of the arrears, fees, and penalties to be cured (without interest) over a 3-to-5 year plan. No interest is an important key. If you are $6,000 behind on your mortgage, you can catch up on the arrears for roughly $100 per month over 5 years.

Now, penalties and fees may increase the amount owed, but they too are paid without interest. In any case, Chapter 13 bankruptcy allows many individuals to keep their homes long after they stopped believing it was possible.

An important side note about attorney fees for the banks and mortgage companies.... they are allowed by law to add-on additional fees after a sheriff has been actually scheduled. So, if possible, you will want to contact us before the sheriff sale is scheduled, to avoid as much in the way of fees as possible.

I am an experienced Pittsburgh bankruptcy attorney who would be happy to speak with you during a free consultation to discuss whether saving your home through Chapter 13 bankruptcy is an option. Don't wait until it is too late, call today to save your home.

Property Taxes and Bankruptcy

Property taxes and municipal fees can accumulate rapidly in a few years when a homeowner falls behind. Between the taxes, the interest, and attorney fees, the amount can quickly become unmanageable. Fortunately, Chapter 13 Bankruptcy provides an opportunity to square up with these debts over a 3-to-5 year Chapter 13 Plan.

Not paying property taxes is a serious matter. Municipalities and taxing agencies can, and will, get judgments against the homeowner and the property. Once these court judgments have been obtained, the taxing agency is within their rights to sheriff sale the property out from under you to pay the debt. You can absolutely lose your home over property taxes, and I have seen many clients in this danger. This takes many people by surprise, but it is a real possibility.

Chapter 13 bankruptcy can stop these lawsuits in their tracks, and even stop a sheriff sale. The Bankruptcy "automatic stay" under the Bankruptcy Code effectively stops any lawsuit related to property taxes from proceeding. However, the taxing agency will only be permanently stopped from collecting against your home if they are paid in full, with interest, in the Chapter 13 Plan. (If your Chapter 13 plan fails, they can reinstate the lawsuit).

Once again, paying these property taxes through Chapter 13 bankruptcy can occur over a 3-to-5 year period, during which you will receive Court protection from any property tax lawsuits or collections. This is a major advantage, as you are not required to provide all of the money at once. This is often the only way a debtor would be able to keep their property while facing large property tax obligations.

Interest must also be paid to the taxing agencies. This rate ranges from 10% for many local municipalities, to 12% for Allegheny County (NOTE: rates can vary by county and municipality). The ability to spread out payments over the Chapter 13 bankruptcy plan can certainly make re-payment possible.

Finally, it should be noted that Chapter 13 bankruptcy filers will need to keep their ongoing property taxes current. If current taxes are not paid while catching up property taxes in arrears, the debtor will be left in the same position as before filing.

If you are having difficulty catching up on property taxes, contact us to speak with an experienced Pittsburgh Chapter 13 bankruptcy attorney. The initial consultation is always free, and I will be happy to speak with you at length to determine if Chapter 13 bankruptcy is an option.

Paying the Chapter 13 Trustee

While most Chapter 13 payments will be made to the Chapter 13 Trustee via wage attachments or bank attachments, some payments will be made directly by the debtor on their own.

Typically, this occurs at the beginning of the case before the wage attachment takes effect, or when the debtor is transitioning between jobs. This post describes how to make these direct payments.

All payments to the Chapter 13 Trustee must be mailed via normal mail to the following address (NOTE: Do NOT use any form of mail that requires a signature from the Trustee, such as certified mail, as the Trustee will NOT accept it.):

Ronda J. Winnecour

P.O. Box 1132

Memphis, TN 38101-1132

Payments will only be accepted by the Chapter 13 Trustee if they are money orders or certified checks... personal checks and cash will NOT be accepted. 

Your money order or certified check should include your bankruptcy case number, which will be in the form of 16-12345 (year the case was filed, dash, and then five digits). Keep a record of your payment in case it is lost in the mail or otherwise mishandled.

Your first payment will become due 30 days after your case is filed (otherwise, your case will be dismissed). Typically, you will stop making the payment directly when you see the wage attachment come out of your paycheck, or the bank attachment come out of your bank account. But, always verify this with your attorney. Missed payments could result in the need to increase your plan payment to catch up, or in a worst case scenario, the dismissal of your case.

So, to summarize, here is everything you need to know about mailing your payment directly to the Chapter 13 Trustee when your attorney advises you to do so...

  • Mail (regular mail)  to Ronda J. Winnecour, P.O. Box 1132, Memphis, TN 38101-1132
  • Money orders and certified checks ONLY, no personal checks or money orders
  • Remember to write your case number on your certified check or money order
  • The first payment is due 30 days after the filing of your case

If you have any questions about your bankruptcy payment, contact us immediately.