Chapter 13 Bankruptcy

Filing Chapter 13 bankruptcy is an option for debtors in Georgia to keep their homes and cars when they fall behind on payments. Chapter 13 is a form of bankruptcy that consolidates debt into a payment plan based on the bankruptcy petitioner’s current disposable income and reasonable expenses. After a bankruptcy judge approves the repayment plan, the bankruptcy filer has three to five years to complete the payments.

 

Who is a Good Candidate for Chapter 13 Bankruptcy?

Chapter 13 is a good option for debtors in arrears with their houses and/or cars who would like to consolidate the past due amount into a monthly payment. A debtor in a Chapter 13 bankruptcy case may pay back anywhere from zero to 100 percent of his or her unsecured debts. The amount depends on how much disposable income he or she has at the end of each month. The means test applies in a Chapter 13 to determine the amount of disposable income a debtor has based on household income compared to the median income for a family of the same size in Georgia.

 

What About Chapter 7 Bankruptcy?

Chapter 13 is an alternative for debtors who cannot file Chapter 7 due to earning too much income or because they have too many assets. Chapter 13 also differs from Chapter 7 in the following ways.

  • Chapter 13 debtors repay creditors rather than wipe out debt like in Chapter 7.
  • Chapter 13 proposes a 3 to 5 year plan, while a Chapter 7 usually lasts 4 to 6 months.
  • Chapter 13 allows debtors to keep property where payments were delinquent prior to filing vs. Chapter 7 where debtors may lose property used as collateral for loans.
  • Debtors who file Chapter 13 can file more than one case over the course of 8 years as long as the cases are not filed abusively.
  • Chapter 13 allows debtors who own property with unexempt equity to keep the property, so long as the debtors are repaying unsecured creditors as much as they would receive in a Chapter 7 liquidation.

 

10 Steps to Filing Chapter 13 Bankruptcy in Georgia

The following steps show the typical progression of a Chapter 13 bankruptcy case.

  1. File the case with a payment plan and petition.
  2. Receive an automatic stay barring all creditors from collection activities.
  3. The clerk of court sends out a notice of bankruptcy to all creditors.
  4. Attend a meeting of creditors approximately 30 days from the filing date and a confirmation hearing approximately 60 days from the filing date.
  5. The first monthly plan payment is due 30 days from the filing date.
  6. The Chapter 13 trustee files objections to confirmation of the case after a meeting with creditors.
  7. The court issues an order confirming the case when objections are cured. The case will be dismissed if not confirmed.
  8. Creditors have an opportunity to file “proofs of claims” to be paid through the Chapter 13 case.
  9. After confirmation of the case, the bankruptcy petitioner continues to make monthly payments for a period of three to five years.
  10. Before receiving a close and discharge, the bankruptcy petitioner must complete a financial management course and file the counseling certificate with the court.

 

Chapter 13 Hearing or Meeting of Creditors

Just as in a Chapter 7 case, you have to attend a 341 Meeting of Creditors about one month after filing your Chapter 13 bankruptcy case. At the 341 meeting, the trustee normally asks questions aimed to see if your case is going to work for you and your creditors. There is a second hearing known as the confirmation hearing about 60 days after filing the case. At the confirmation hearing, the court decides whether your Chapter 13 is approved and can continue. You are also required to take a second credit counseling course before the end of your case. If you make all of your Chapter 13 payments, you will receive a close and discharge of your case at the end of the three or five year plan.

 

Payments in Chapter 13 Bankruptcy Cases

In a Chapter 13 bankruptcy case, the debtor proposes a 3-5 year payment plan to the court to consolidate debt. Mortgage arrears, car loans, tax debt, delinquent domestic support, and unsecured debt can be consolidated into a Chapter 13 plan payment. In order to successfully propose a plan, the debtor must prove that he is able to meet his monthly living expenses AND make the Chapter 13 plan payment. Factors such as monthly household income, amount of debt, and value of assets determine the amount of the monthly payment.

In a Georgia Chapter 13 bankruptcy case, your first monthly payment is due 30 days after you file your bankruptcy case. You make one monthly payment to the Chapter 13 trustee, and the trustee disburses the funds to your creditors. You do not have to make a separate car payment to your car creditor, but you are required to make all of your mortgage payments that are due after the date of filing directly to your mortgage company in order to keep your house. However, if you are behind on your mortgage, the mortgage arrears are included in your monthly payment to the Chapter 13 trustee. Even after you file a Chapter 13, you can work with your mortgage company on a loan modification to possibly lower your monthly mortgage payments going forward.

If you are not paying back your unsecured creditors at 100%, then you will have to pay your tax refunds into the case every year. Over the course of such a long period of time, many issues come up that may cause you to have to go back to court. While you’re in Chapter 13, you are not allowed to incur new debt or sell property without court approval.

If you file Chapter 13 bankruptcy in Georgia, you will have access to a website that shows the Chapter 13 trustee’s disbursement of your payments to creditors. There, you will see that creditors are paid according to their statuses. Creditors such as mortgage companies and car creditors receive payments first. Tax creditors and domestic creditors seeking child support or alimony are next in line. Last in line are unsecured creditors, which usually consist of credit cards, medical bills, and utility bills.

 

Interest Rates in Chapter 13 Bankruptcy

Many times, you can lower the interest rate or even the balance on your car note in a Chapter 13. Bankruptcy law allows you to pay the fair market value of a car if you purchased the car more than 910 days before you file bankruptcy. Even if you purchased your car less than 910 days before filing bankruptcy, you can pay your car creditor a lower interest rate than the interest rate that you were paying before filing bankruptcy. Georgia bankruptcy courts have allowed debtors to pay prime interest rate on the day of filing plus 2% as a reasonable interest rate to car creditors.

 

Other Benefits of Filing Chapter 13 Bankruptcy

In addition to allowing debtors to keep their homes and cars by arranging for lower payments and interest rates, Chapter 13 bankruptcy can also:

  • Reduce interest rates on car loans
  • Reduce interest rates on other purchase money security loans (i.e. furniture purchased on credit)
  • Strip second mortgage liens on real estate that is under water
  • Reduce car loan amounts to fair market value of the car if the car was purchased more than 910 days before the bankruptcy case was filed

 

Schedule a Consultation to Learn More

We invite you to contact CMC Law in Atlanta at 404.585.0400 or email info@cmclaw.com to request a personal consultation so you can understand your options and decide if Chapter 13 bankruptcy is right for you.

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