Funding Your Chapter 13 Bankruptcy

Chapter 13 bankruptcy plans require regular automatic payments to be made to the Chapter 13 bankruptcy Trustee. This can generally be done in one of two ways.

The first way is a wage attachment served directly on your employer and payroll department. A wage attachment motion will be filed in the Bankruptcy Court and signed by the bankruptcy judge. I would then take the signed order and serve it on your payroll department. In this case, payments will come directly from your paystub, before reaching your bank account, as a voluntary garnishment. If you change jobs, you will need to let your bankruptcy attorney know right away, so that a new wage attachment can be filed.  This method does not cost you any money. It is your responsibility, however, to make sure that the payments remit every paycheck.

The second method for funding your Chapter 13 bankruptcy plan is through a direct bank attachment. This is done through the website tfsbillpay.com . There is a nominal fee for the service, but it allows you to make payments directly from your bank account that are secured and easily trackable. Once again, it is your responsibility to make sure that the payments come out every month, or whatever frequency that you choose to make them. 

The method that you choose will depend on your circumstances and wishes. If you do not want to have your employer know about your case, the bank attachment is the best choice. Also, if you do not receive regular paystubs, or your income varies widely, the bank attachment is probably the best option.

If you wish to avoid any fees, or if you believe it is simplest for the money to come out before it hits your bank account, the wage detachment is the best option. You can discuss these options with your bankruptcy attorney in more detail. If you’re considering filing Chapter 13 bankruptcy and have any questions, feel free to reach out and set up a free consultation by calling me at 412-414-9366. I would be happy to discuss your situation and see if there is a good bankruptcy option for you.

Liquidation Alternative Test

The liquidation alternative test is a somewhat confusing aspect of bankruptcy law. It requires debtors to repay unsecured creditors for any amount above the exemptions allowable for their property. Let me give a basic example.

Let’s say your house is worth $100,000 and it is owned outright with only you on the deed. With no mortgage or any other liens, you have $100,000 in equity. Under the bankruptcy code, you can exempt roughly $25,000 of this equity. This leaves $75,000 in equity that is not exempt. If you were to file a Chapter 7 bankruptcy in the scenario , the United States Trustee could theoretically liquidate your house and use this $75,000 in unexempt equity to pay your creditors! Obviously, this is not a good option.

The alternative to liquidating your home would be paying back your unsecured creditors up to the $75,000 in unexempt equity. Now, in this example , that may prove to be impossible as it is a lot of money to repay. However, in many examples the unexempt equity is much less. Let’s try a different but similar scenario.

Let’s say your home is still worth $100,000, but you also have $40,000 remaining on your mortgage. You also have a $10,000 tax lien . Finally, let’s say that you have a $15,000 home equity loan. That is $65,000 in liens on your $100,000 home. If this scenario you have $35,000 in equity of which $25,000 can be exempted. That leaves $10,000 in unexempt equity under the liquidation alternative test. In this scenario you can repay up to $10,000 to your unsecured creditors to satisfy the test.

If you owe $75,000 to your unsecured creditors, the balance of $65,000 is discharged in the chapter 13 bankruptcy.

So, it will be very important to determine several things when looking at the liquidation alternative test. The easiest thing to determine is what you owe. You can simply do that with mortgage statements and tax statements.  The trickier thing to figure out is what your home is worth. That may require a formal appraisal or a realtor assessment. Once you have both of those numbers, it will be easy to determine.

It should be noted, the liquidation alternative test does not just apply to real estate. Any property that you own that goes beyond your ability to exempt it  is potentially an issue. This may include cars that are owned outright, savings in a bank account, collectibles or antiques, or basically any other property. However, homes are the most common issue.

If you were considering filing bankruptcy, call us at 412-414-9366 to set up a free consultation , I would be happy to sit down and determine if the liquidation alternative test or anything else will be an issue with your filing.

Financial Resolutions

New Year’s is a time to both reflect and look forward. It’s also a time of the year when people make resolutions. A pretty common resolution to clean up your finances. What are some things that you should consider when resolving to clean up your finances?

The first thing I would suggest considering is whether or not you are able to pay down the balances on your outstanding debt, especially unsecured debt like credit cards. If you are continuing to aggressively pay down these balances, great, keep it up! If, even after you make payments to your creditors every month, the balances either stay the same or even go up, you should consider whether bankruptcy is an option. Chapter 7 bankruptcy may completely wipe out your unsecured debt. If you don’t qualify for Chapter 7 bankruptcy, a Chapter 13 bankruptcy can at least help you freeze your balances and stop the high interest payments.

A second thing to keep in mind when looking ahead is your secured payments like mortgages and cars. If you have a mortgage with an adjustable interest rate, you should plan ahead. With interest rates increasing you may need to make a higher monthly payment going forward. This is something to keep in mind when budgeting. If you need a new car, you should consider your budget as well. If you’re making payments that are handling your other debts, you were probably in good position to get a new vehicle. If you’re falling behind, or struggling to keep up, it may be best to try to get one more year out of your car.

Finally, you should consider sitting down and making a detailed budget. I mentioned this previously when considering whether or not to buy a new car. It sounds simple, but it really does help to sit down and write out all of your expenses, from mortgages and car payments all the way down to small things like streaming services and daily coffee trips. It may help you realize things that you can easily cut out. It may help you look at places to tighten the budget. If your income is going to go up, it could give you the confidence to invest more money or even plan a trip you have been waiting to take.

Personally, I occasionally go through my own budget to get a better feel for my finances. I think it helps.

If bankruptcy or possibly a debt settlement are in your plans for 2023, call us at 412-414-9366. I would be happy to set up a free consultation and discuss your situation. Now is a good time to think about your financial situation and whether or not you are in a good place or if you need some help.

The Problem of Rising Interest Rates

The federal reserve has raised the baseline interest rate from 0% to 3.75% in the last several months, and the rate is projected to continue to increase. This has an incredible effect on the how much it costs to service debt. Everything from mortgage payments to car payments to credit cards to personal loans will become more expensive to service or acquire. This will make it easier to accrue large amounts of debt and harder to pay the debt that you already have.

Hopefully, if you already have a mortgage, the payment has a fixed interest rate. Variable interest rate mortgages stand to increase greatly in the coming months and years. Fortunately, there are not as many variable interest rate mortgages as there once were, especially before the financial crash of 2008 and 2009. However, if you have a variable interest rate loan, you should watch your mortgage statement closely in the coming months as the payment could go up significantly. Also, if you are seeking a mortgage or any loan in the near future, you should absolutely avoid variable interest rates.

Consolidation loans will also get more expensive. This makes it harder to consolidate a collection of credit card debt under one loan. Chapter 13 bankruptcy may be a good alternative option as creditors are always repaid at 0% interest over the course of the bankruptcy plan. Therefore, increasing interest rates do not make a chapter 13 bankruptcy repayment plan more expensive. This is an important consideration because interest is often the hardest part to get under control with unsecured debt. Chapter 13 bankruptcy locks in your current amount and actually gives you a target to pay off. Your balances will actually go down when you stop having to pay high (and getting higher) interest rates.

There is no real good advice for how to deal with higher interest rates. They affect everyone and make everything more expensive. The idea is to decrease the attractiveness of taking out loans and therefore slowing down the economy. To whatever extent you can avoid taking out loans, obviously you should do so. But unfortunately that is not always an option in life. If you need to buy a home you can’t just wait until interest rates drop. One positive side effect of higher interest rates when buying a home is that it tends to decrease the actual cost of the home, sometimes greatly. If you need to buy a home now, the best case scenario would be to pay the higher interest rates in the next several years and then refinance to a lower rate when interest rates drop.

Higher interest rates are a problem for almost everyone. If you have been considering a loan consolidation but now find it less affordable, contact us at 412-414-9366 to set up a free consultation. Chapter 13 bankruptcy may be an option to step outside of the pain of higher interest rates.

Joint Bankruptcy

Married couples have the option of filing a joint bankruptcy, both in Chapter 7 bankruptcy and Chapter 13 bankruptcy. This is a great option to save time and money. When is the best time to take advantage of this option?

The most important question will be who has the debts in the marriage? If only one spouse is liable for all of the debts, in almost every situation they will be the only spouse who needs to file. The most important part of any bankruptcy is the discharge of debt. If you don’t have any debts to discharge, it doesn’t make any sense to file.

Now, what about the more likely scenario where both spouses have some of the debts? If the debts of both spouses are significant, it makes sense to file jointly because the filing fees and court costs are the same whether the bankruptcy is filed individually or alone. Sometimes, one spouse does not want to file even with significant debts. I always point out that filing jointly is a great way to save money on attorney fees and court costs, because if they change their mind at a later date, everything will be filed anew, with all new costs.

It is important to remember that joint debts are only discharged as to the spouse who actually files bankruptcy. The non-filing spouse in these scenarios would become 100% liable for a credit card discharged in bankruptcy by the other spouse. This is called joint and several liability. It allows creditors to collect the entire debt against one or both of the co-debtors, in any proportion. So, if a married couple has numerous joint debts, and only one of the spouses files, it will not protect the other.

It will be important to go over all of your debts with your bankruptcy attorney to determine what is (and what isn’t) dischargeable. Filing a joint bankruptcy is something that married couples with joint debts should strongly consider. One final aside, you have to actually be married to file a joint bankruptcy. Call us at 412-414-9366 to set up a free consultation and discuss your situation.