Tell me about Chapter 13

In My Humble Opinion
1

Life has been sucking these last several months at Maison Marlitharn; the husband lost his job almost a year ago and hasn’t been able to find another one, I took a (small) pay cut to move to a job 25 miles closer to home because I drive a piece of crap that keeps breaking down and requires at least $200 to fix it everytime it does, we’re behind on every conceivable payment, people keep threatening to sue us, and we’re close to losing the house.

So our credit counselor suggested chapter 13 bankruptcy. We haven’t discussed it with her in depth yet; there were a couple of other options we wanted to exhaust first, but it looks like they’re about exhausted. From that website, it basically looks like a repayment plan that would buy us 3-5 years to try to get our shit straightened out without people suing us or foreclosing on us, yes?

My main question is: We’re a family of three living on $1300 a month, give or take; would a bankruptcy lawyer even be able to come up with a repayment plan to keep everyone happy on that small amount (considering that, if I’m reading my own cite correctly, we’d still have to make our regular monthly mortgage payments ($550) in addition to paying to make up our missed payments)?

I was sued 7 years ago for an outstanding student loan and faithfully made monthly payments to my college’s lawyers up until everything went to hell (the bastards at the moment have a freeze on my checking account, which is what brought all this to a head - I didn’t find out about the freeze until AFTER I’d mailed that month’s mortgage payment, which of course didn’t get honored) - is it still considered a student loan and therefore I can’t declare bankruptcy on it, or is it now an unsecured debt?

Somebody please tell me there’s light at the end of the tunnel. That’s not a train, I mean.

2

I don’t know enough to answer you well, but I wanted to pop in and send you supporting thoughts. May whatever gods there be, be with you during this difficult time.

3

IANAL, but I’ve been where you are at. A Chapter 7 is the best way to go if you can do it. While you are in the Chapter 13, it will be impossible for you to take on any new debt, (say if your car gives up the ghost), plus if you fail to make the payment plan work the bankrupty will be dismissed. A dismissed BK on your credit report is worse than anything else. If you do a 7, you can truly start over.

IANAL! Consult a Bankruptcy Attorney! Good luck to you!

4

Paging Olivemarches4th.

5

Oh seriously, I don’t know anything. I do work in debt/BK counseling, but I’m a glorified receptionist. :stuck_out_tongue: My knowledge is limited to what to expect for the required Pre-Filing Briefing Counseling and Pre-Discharge Education that you will inevitably have to go through to complete the process.

Only an attorney can tell you whether or not you legally qualify.* Then he or she will refer you to a consumer credit counseling agency to obtain a certificate of financial counseling. During that session the counselor will review your situation and discuss the pros and cons of bankruptcy as well as any alternatives you might have based on your situation. They’ll then take a look at your budget, plug your debts into a kind of ‘‘Chapter 13 algorithm’’ and give you an idea of what your repayment plan would look like. It is not up to the credit counselor to decide whether you will be able to manage this payment, it is actually up to the court, so really this is a tricky thing to do without a lawyer.

*Disclaimer: some people do BK without an attorney, I don’t know how they do it but I imagine they are bald from tearing out their hair by the time they finish.

Have you contacted a lawyer? Have you already completed this first certificate of counseling (you mentioned you spoke with a credit counselor, but it’s unclear whether it was a general consultation or a BK consultation.) All told you are looking at shelling out $2000-3000 for this process. I’m sorry. :frowning: New Bk laws.

I really just want to say my heart goes out to you. When I read this thread I had this weird dejá vu feeling like I was at work. If there’s any consolation in it at all, you are NOT alone, there are so many people struggling right now. One thing I have learned at work is that Bankruptcy is Not Forever. No financial situation really is. Well honestly, no situation, period, is forever. You will bounce back.
ETA: Not to make light of the situation at all, it’s obvious you are going through hell. My Aunt had to file BK because of student loans (wayyy back in the day) and I’ve come damn close myself. You wouldn’t even recognize my Aunt–or myself, financially, compared to where I was even 3 years ago. So truly, honestly, believe that it will get better.)

6

I have to second olivesmarch4th - no situation is forever and you will bounce back.

Many, many years ago I filed Chapter 13. It is clear from some of the posts here, the laws have changed somewhat, etc. and I suspect it maybe a bit harder now than in the past.

My attorney recommended Chapter 7 which I refused to do. I felt a moral obligation to pay my debts but I was unable to get out of the hole I was in with delinquency, collection demands for payment in full, possible wage garnishment, etc. I pushed for a Chapter 13 and at that time, the attorney was able to negotiate through the courts for a reduced total debt (I think the original proposal agreed upon was 35% of the total debt) which correlated to a much small total payment per month to the bankruptcy trustee. Being the same pig-headed person who wouldn’t accept Chapter 7 I also refused a lower negotiated total debt amount and wanted to pay back the full amount owed based upon my own ethical/moral reasons. Ultimately, that is what I did - a 100% payback over… I think 3 years… under Chapter 13 and managed/administered by the trustee. I got breathing room from collectors, an end to the recurring late fees and interest and overwhelming minimum payments due to all my creditors, etc., and I got some satisfaction that I paid all of my debt back and did the “honorable” thing.

That all meant jack-shit.

My credit, which arguably was already ruined by the delinquencies already, was completely destroyed by the Chapter 13. It did not matter one bit that I paid back 100% when I could have screwed my creditors out of 65% of what I owed them. It did not matter one bit that I paid back 100% when I could have screwed them out of 100% of my debts if I had filed Chapter 7. In fact, it would have been easier and faster to re-establish good credit had I filed Chapter 7 instead of Chapter 13. It was after my Chapter 13 was discharged (successfully completed all payments, etc.) before I could get even a high-credit risk Visa (outrageous interest rates) card - so at least 3 years. Buying a car? Forget about it unless it was from a buy-here/pay-here lot. Home mortgage? Not a chance.

Now, credit rating aside, it was also a very good thing for me. I was forced to make all my payments on time every month. I learned the discipline to manage my money and dedicate time each and every payday to paying my bills. I was unable to run up debt in any way so I learned to save for things that were more expensive. I learned to put money aside for “emergency” events as I no longer had a credit-card safety net. I also realized (eventually) that if I wanted to avoid living hand-to-mouth I needed to a.) discipline my spending and b.) increase my earning potential via a college education.

By the time my Chapter 13 came off my credit report (7 years later) I had established positive payment history on the high-risk credit card and ultimately a used car loan. When the bankruptcy came off my report and there were no other negatives and a low income:debt ratio, etc., my credit rating soared. Ultimately, many years later I was in the upper 700’s in credit rating, receiving pre-approved “gold” or “platinum” cards with great interest rates, I was able to qualify to purchase a home with a zero down and very low fixed interest rate mortgage, buy or lease almost any vehicle I wanted, etc., etc., etc. Not to say I did all of those things, but I was (and still am) by most all measures an excellent credit risk.

The road was long (the Chapter 13 will sit on your credit for 7 years), it sucked and was embarrasing and frustrating, etc., but for me at that time I felt it was my only option. As olivesmarch4th said - it was not forever although there were times when I felt I would never be clear of the mistakes I made in the past.

So that’s my little story/contribution. I wish you and your family the best of luck, I know how bad it feels to be so overwhelmed by debt and life’s situations.

MeanJoe

7

IANAL - but have worked as a bankruptcy paralegal for 10 years. All situations are different, and you should see a lawyer. Most initial consultations are free, and if you can’t afford the fees, your county should have pro bono lawyers who will take the case for free.

Having said that, I am sorry for your situation.

A Chapter 13 bankruptcy can be used to catch up on your mortgage arrears - in that case, it’s basically forcing the mortgage company to accept a repayment plan. But, yes, you will have to keep current on your other obligations, including the current monthly payment. If you can’t make the payment now, and have no immediate hope of being able to do so in the next few months, maybe it’s better to move at this point.

A Chapter 7 bankruptcy will give you a Discharge on most, if not all, unsecured debts, but the mortgage arrears and regular payments will remain (along with other secured debts you have, like car payments.) However, a Federally-backed student loan will not be discharged. You can get what’s called a Hardship Discharge, but it takes much paperwork, and is iffy at best. The standards for a Hardship Discharge are high.

Filing either kind of bankruptcy will automatically stop all lawsutis against you. The forclosure lawsuit can be continued after an application to the Court by the mortgage company - a Chapter 13 repayment plan will hold them at bay unless you start missing payments. For unsecured lawsuits, like credit cards, medical bills, etc., the lawsuit will stop, and the debt will be discharged at the end of the bankruptcy. Filing a bankruptcy will also unbrick your checking accounts.

You can PM me if you want. Bankruptcy laws are Federal, so they cross state lines. I urge you to see a lawyer - credit counselors are great, but a lawyer can give you a specific plan.

And, yes, there is always light at the end of the tunnel. If nothing else, you’re still above ground, right?

8

Thanks for all the advice, guys.

What sucks is that, reviewing my situation, it’s not credit that’s screwing us over. I mean, we had a total of 4 credit cards, all of them with less than $1,000 on them, all now in collections because when things started going to hell they dropped to the bottom of my priority list. Our credit counselor is in negotiations with our mortgage company to try to get us a forbearance, so we’re not even paying them this month, and I’m still struggling to catch up on phone, water, utilities, the usurious title loan company that’s holding a lien on my car. Plus pesky little things like gas and groceries. It’s like it crept up on us, pay one bill one week, pay another the next week, plan to pay a couple more after that, but then the car breaks down and oh, look, the fridge and pantry are empty again, we need to re-stock, and now all the bills are due again and we missed a couple last month. Aargh.

I don’t think moving is an option. Between my bad back and my husband’s bad everything else, we’d have to hire someone to pack us up and move us, and if we had the money for that we’d have the money to get our bills caught up.

I’m applying for a part-time job as office help for a local non-profit; I’m keeping my fingers crossed I get it. If my husband ends up never being able to go back to work (and it’s been almost a year), I might still be able to make enough to push us over the edge (or rather, keep us from falling off the edge).

I just keep telling myself, “Just do what you can and hell with the rest. They can’t take your birthday away.”