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Chapter 13 Bankruptcy

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16

Jun 2012

Bankruptcy Second Opinion: Why Chapter 13?

Posted by / in Chapter 13 Bankruptcy, Chapter 7 Bankruptcy / 32 comments

Two people in Chapter 13 bankruptcy plans came to see me this past week for a second opinion.  I told both that for them, Chapter 7 bankruptcy was better.

Legal ethics allows me to give a second opinion to people who already have a bankruptcy lawyer.  (I don’t like to do that because it really hacks off the other lawyer.)  These folks didn’t have a bankruptcy lawyer.

Chuck’s Chapter 13

The first guy, Chuck, had hired one of those bankruptcy lawyers who advertises a low, $899, legal fee.  Because of a mix up, his chapter 13 was dismissed six weeks after the case was filed.   (Dismissed means a bankruptcy is thrown out; discharged means it’s approved.)  That discount bankruptcy lawyer did not get the case reinstated.

Chuck  then went to a second bankruptcy lawyer, who did get the case reinstated–and charged a fair fee for that.  But Chuck’s second lawyer said,  “I’m helping you just this one time.  If you get in trouble again, you are on your own.”

Well Chuck was in trouble again, and came to see me for a second opinion.

The reason Chuck’s in trouble is he can’t afford Chapter 13.   His chapter 13 plan stopped a foreclosure, and tried to catch the house up over five years.  Chuck has been making his bankruptcy payments, but kept falling further behind on his mortgage.

The problem is the big 401k loan that Chuck took out to catch the house up the first time when his wife split.  Paying back that 401k loan doesn’t leave enough money in his paycheck.

When we talked it over, we figured out a solution.  Chuck’s daughter is living at home, working a low paying job in fast food.  She started a radiology program but can’t afford to finish.  She’s not saving any money to go back to school, because the little she can put into the family is needed to fund the chapter 13 plan.

If Chuck stops making the chapter 13 payment, then there’s enough money for the daughter to finish the radiology program.  When she gets a good paying job, then the family can afford the house.

Before filing the chapter 13, Chuck had tried for a loan modification but was turned down.  Turned down for two reasons, I think–too much debt, and too little income.

A chapter 7 bankruptcy will take care of the other debts, and it slows down the foreclosure that will soon be coming because he’s late on the house again.  Getting the daughter to finish school and get a good job will fix the income problem.

Chuck and his daughter have to move fast.  Stop making the Chapter 13 payments, finish school, get a job, file Chapter 7, apply for and get a loan mod.  The pieces have to fall in right for that to work, and he’ll have a chance to save the house.

Some people think you have to file chapter 13 to keep your house. For many people, chapter 7 can work better.

Some people think you have to file chapter 13 if you want to keep your house.  and for some people, that’s true.  But often chapter 7 can stop the foreclosure and save the house–and is much more likely to work than Chapter 13.

Chapter 13 had no chance to save the house for Chuck and his daughter.  There just wasn’t enough money to make it work.   Chuck’s chapter 13 guarantees the house will get foreclosed.

I hate to put people into chapter 13 plans they obviously can’t afford.  I like finding ways to use Chapter 7 to get people where they are trying to go.  That’s one reason I file fewer chapter 13s and more chapter 7s than most lawyers around here.  And it’s a reason my dismissal rate is very low.

Karen’s Chapter 13

Karen came to see me after her Chapter 13 lawyers got sick and had to stop practicing law. Karen decided to get a second opinion from another bankruptcy lawyer just in case something came up with her Chapter 13.

After we talked, we decided Karen needs to convert to chapter 7.

Karen and her husband have been getting along badly for years.  They are “separated,” and living in the same house.   When she started chapter 13, her goal was to hang on to the house until their youngest son graduated from high school.

The young man has successfully finished his first year at Christopher Newport, and now it’s time for Karen to move out and get a place of her own.   She’s been holding off, because she can’t afford to move.  She can’t afford to move because of her chapter 13 payments.

Switch to chapter 7!  That solves that problem.

Often when I recommend Chapter 13, I also recommend that we meet to discuss chapter 7 in a year or two.

Sometimes we can look down the road, and see that in a few years–or even a few months–the reason for chapter 13 will no longer apply.   Chapter 13 plans can take five years–and five years is a long time.  After a year or two, it is often time to re-analyze the situation and look again at chapter 7.

“Based on a True Story”

Chuck’s name really isn’t Chuck; Karen’s name really isn’t Karen.  And I’ve changed all the other details, too.

Both these stories and the true stories they are based on, show why it’s important to have a long discussion with your bankruptcy lawyer about your family situation and life goals.

Bankruptcy is like a giant tow truck getting you back on the highway of life.   To get the best result, you need to talk over with your bankruptcy lawyer what road you want to be on and where you are trying to go.

 

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Robert Weed has helped twelve thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.

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32 comments
  • RONALD THOMPSON

    September 13, 2012, pm30 8:38 PM
    01

    hi mr weed i have filed bankrupty over 7yrs and im thinking about 2nd chapter 7 it was in va i am in md some hospital bills and a repo in va would like to know how much a 2nd chapter 7 would be thank u

    • Robert Weed

      September 13, 2012, pm30 8:50 PM
      02

      Ronald:

      Since the new law in 2005 you are eligible for chapter 7 every eight years. That runs form the fling date–not the discharge…sorry I can’t help people who live in Maryland.

  • nichole

    January 14, 2013, pm31 12:28 PM
    03

    Hello. I need some advice. I had a bankruptcy and 3 months before completely done with it I couldn’t catch up on behind payments. I had till nov. 11 to pay 7860 Ipad 5500 but it didn’t reach till nov. 13 one payment and then dec. 12 another payment. I still owed 2340. My case got dismissed nov. 26th. None of the 5500 was ever disburst to creditors its still on hand. I have the 2340 now do you think Ican file for reinstatement of bankruptce and pay the balance and be discharged? I’m in desperate need of help. Creditors are already calling. Do you think Ihave a good chance? Its my understanding Ineed to write a statement on why this happend. we lost our company. We took a huge pay cut and had to move to another state for work. We did the best we could and still saved after it was discharged to hopefully get to reinstate it and pay it for a discharge. Please help

    • Robert Weed

      January 14, 2013, pm31 12:34 PM
      04

      Nichole:

      You might be able to get it reinstated. Some judges are more open to that than others. What does your lawyer think?

  • nichole

    January 30, 2013, am31 10:57 AM
    05

    She just says she don’t know if he will. All we can do is try. So…I’m still in the process of gathering money and plan to try for reinstatement. Hopefully have the money in to her on the 8th of feb. Do you think Ihave waited to long.

  • Noel

    February 5, 2013, pm28 1:52 PM
    06

    Hi,
    i have a question.. when i first started my bk i was married and filing for a chapter 7 with my wife. then I got divorced and nothing happened and he changed everything to chapter 13 without my consent. I remarried and now is asking me for my wife’s information. Can i change it to a chapter 7? i can’t make the payments nor my new wife. can you give me some advise? thanks

    • Robert Weed

      February 5, 2013, pm28 3:13 PM
      07

      Noel:

      I don’t know if you can change it to Chapter 7 because I don’t know why you are in chapter 13. But I do think you need to see another lawyer. It also sounds to me like your lawyer should have told you to start over with a new lawyer when you and the first wife split, because unless you and the first wife had not debts together, that lawyer had a conflict. Thsi does not smell right at all.

  • Brian Shaw

    February 7, 2013, pm28 9:51 PM
    08

    My wife and I filed Ch. 7 01/20/2006. We got into an owner carry situation with a mortgage and after a year in the property didnt appraise for what we owed on it and in another year we had a ballon payment on the balance. We went to the mortgage holder and asked her to extend the loan for 5 years that way we could pay more down and hope the value you would rebound. In addition I had lost my job so we had the double whammy and could not qualify for a re-finance. We were not behind on the mortgage when we asked for the extension. As you can guess she refused and wanted us to pay for the additional year then she would think about it, that would have been another $25 with no guarantee that we would keep the house. She has now filed a garnishment on my wife’s income, and I am still unemployed and we cannot afford the garnishment, yet we are over $30,000.00 under the Means Test and do not have any disposable income, yet we cant file Ch. 7 until 01/21/2014. What do we do?

    • Robert Weed

      February 8, 2013, pm28 4:15 PM
      09

      Brian:

      What you can do now is to talk to a lawyer about filing a Chapter 13, so that at least you pay less to the bankruptcy court than the garnishment would be.

      When they lengthened the time between Chapter 7 bankruptcies from six years to eight, they really hurt a lot of people. But you can do a chapter 13, which is better than getting garnished.

  • Farrah pirahanchi

    March 11, 2013, am31 12:40 AM
    10

    I filed a chapter 7 for my mother in order to stop her foreclosure. I have been told I should convert it in to a 13. Her trustee meeting is on the 21st. I need to hire an attorney to continue. Can you please advise me of an Attorney in San Diego ca. The only Debth she has is the house she lives in.

    • Robert Weed

      March 11, 2013, am31 10:12 AM
      11

      Farrah:

      Maybe you should switch to chapter 13, but maybe chapter 7 buys enough time to work something out…you need a good lawyer there to give you their best advice.

      sorry I don’t know anyone in San Diego. You can look here. http://www.nacba.org/Home/AttorneyFinderV2.aspx. good luck

  • Timisha

    March 28, 2013, pm31 12:46 PM
    12

    I am thinking of filing bankruptcy and I really need to file a chapter 7 because of my situation but I read on your powerpoint that the government might force me into a chapter 13 because of my income. How often does this happen, and what if your monthly expenses are more than your income?

  • John

    April 16, 2013, am30 6:06 AM
    14

    I am an expat living overseas for the last 5+years. My problem is little different: I have had a house but actually the house was legally mine but it actually was my uncle’s cause I have put my name on the mortgage as I had a regular income. But things went south both in his business and at my job, and we have gotten a home equity loan for starting a business abroad but failed so that loan went away and the house were leased but tenants did not make regular payments so started to miss mortgage payments.

    After awhile, as I was abroad, and me an my uncle, whom actually owned the house, drifted apart and he did not take the house & the title back under his name as he promised. So I had left with a big mortgage, him and his sister lived in the house without making any mortgage payments as they were legally free and I was abroad, just did not have merits to resolve the case.

    I have had learned through a friend that the house is foreclosed some time ago. Now, I have a student loan that went into collection agency that I’d like to start paying but also has the mortgage mess, unpaid credit card coming from 6-7 years ago. I’d like to resolve all the cases once and for all as I have started to work on a steady income, which I didn’t have up until 3 years ago.

    I do not know if I qualify for Ch 7 as I live abroad, and or should I file bankruptcy or not. The house is in the state of NY, I know you work in VA but I thought you might recommend a good, honest lawyer that could help me to resolve my case in Long Island, NY.

    Thx in advance.

    • Robert Weed

      April 16, 2013, am30 6:24 AM
      15

      John:

      Filing bankruptcy and getting it approved would have been a lot easier while you still had the house–of course that’s easier for me to say.

      A guy I know who does complicated bankruptcies in NYC is David Shaev. http://www.shaevlaw.com/

      Good luck.

  • Rose

    July 2, 2013, pm31 1:37 PM
    16

    I’m a little confused. I have a lawyer who has filed my Chapter 13…I’m on my 5th payment and the Trustee hasn’t approved the plan yet. Apparently she isn’t happy with the funding amounts again. The reason for the Chapter 13, I have back State and Federal Taxes to pay. All the rest of the debt on my credit report are medical bills and repos (due to seperation). Do you think it would be best to file a Chapter 7? A bit of history, I filed a chapter 7 back in 2003 due to a lay off and I live in MD. I know you can’t assist with MD cases but any adivse would be greatly appreiciated.

    • Robert Weed

      July 2, 2013, pm31 1:57 PM
      17

      Rose:

      This is a common problem. You want to use Chapter 13 to pay off the taxes; and the Chapter 13 trustee says if you can do that, you can afford to pay more to pay the medicals and repos.

      Sometimes the thing to do is file chapter 7 first, to clean up the other stuff, and then come back with chapter 13 to pay the taxes.

      BUT some JUDGES are really angry when you do that. I don’t know your judge, so I don’t know whether you should try that in your case.

  • Robert Weed

    September 6, 2013, pm30 10:04 PM
    18

    Saw a guy today who had been in Chapter 13 for three years and was looking for a second opinion. He was in Chapter 13 because he was over the median income and his lawyer thought he couldn’t get into Chapter 7. His lawyer offered a Chapter 13 paying $381 a month, the Trustee, Thomas Gorman, asked for $500. And since its been raised to $975. He was affording it–by increasing his tax exemptions to 20, which will mean he’ll owe 8,000 next April 15 on taxes.

    He’s easily eligible for chapter 7. He was when his case was filed, he is today. We’ll convert him by the end of month. He wasted three years and $20,000. three years, when he could have gotten back to good credit. $20,000–money he paid in Chapter 13 that he did not have to pay in Chapter 7. Because he went to a discount lawyer. Sad.

    But I am able to save him the next two years and the next twenty thousand dollars by getting him out now.

  • mid

    February 11, 2014, pm28 9:11 PM
    19

    Do I qualify to file Bankruptcy chapter 7? I went to see a lawyer and to my surprise he told me I did not qualify, so I am looking for a second opinion, I live with my 4 year old son, my annual income is 38000 , and I owe around 35000, what should I do?

  • mid

    February 11, 2014, pm28 9:19 PM
    22

    sorry I did not finish, he also told I could loose my car if I don’t file for Chapter 13, my car, furniture, fridge

    • Robert Weed

      February 11, 2014, pm28 9:25 PM
      23

      I know that Florida allows people to protect more real estate and less cars and furniture that almost anywhere. I do NOT know if smart Florida bankruptcy lawyers have a way to work around those problems that does NOT involve filing Chapter 13.

      You need to talk to another Florida bankrutpcy lawyer and see if you get a better answer.

      • mid

        February 11, 2014, pm28 9:35 PM
        24

        Thank you for the advice, I ‘ll talk to another lawyer. Thanks.

  • Donna and Rick

    February 15, 2014, am28 1:24 AM
    25

    My home is getting ready to go into foreclosure we filed chapter 13 about 4 years ago. We left the house out
    of chapter 13 by the advice of attorney. Would like to keep my house but have not found a way to do this
    live in North Carolina.. Any advice would be appreciated this has been such a hard time.

    Thank you

    • Robert Weed

      February 15, 2014, am28 11:28 AM
      26

      Donna and Rick:

      You need to talk to a lawyer in North Carolina. I can’t see that far form here.

  • Francesca Royer

    May 13, 2014, pm31 8:06 PM
    27

    Hi my name is Fran my house has went passed the foreclosures and now bank is sueing me for full amount. I have been in and out of hospital because of my Crohns and boyfriend got hurts so thats what set us back. I want to keep my home and that is the only debt we have besides some hospital bills so I don’t know if I should file chapter 7 or 13 to keep my home. I owe 40,000. And my boyfriend and me bring in about 2,000 a month. We were denied modification loan

    • Robert Weed

      Robert Weed

      May 13, 2014, pm31 8:14 PM
      28

      Fran:

      I don’t know where you are but in most states if the house has gone to foreclosure, it is probably too late to save it. It some states maybe you can. You need to talk to a lawyer where you are.

  • Janet

    July 18, 2014, pm31 1:26 PM
    29

    Good Morning Mr. Weed! My boyfriend and I want to get married this year. We live in Saint Louis, Mo. He is in a chp13 right now and says that he has 2 yrs to go. He filed in an effort to keep his home from foreclosure, but child support payments and/or arrears were also included. I’m not certain if he had any credit card debt or if any credit card debt was included.
    I also filed- ch7 bk, it was discharged in 2009 but my credit has been restored (my credit score is really good) and I continually work to make it better so that I’m never in that place again. I’ve been suggesting or more like urging him to file again but this time file chp7 to have all the debt he is repaying discharged. However, we have three issues that we aren’t certain about:

    1. Can he file the chp7 to wipe out the debt or if it would even be beneficial?
    2. How will my credit be affected by his bankruptcy?
    3. Will our marriage have a negative impact on his bk?

    What if any suggestions do you have for us?

    • Robert Weed

      Robert Weed

      July 18, 2014, pm31 1:31 PM
      30

      Janet:

      First, he should ask his Chapter 13 lawyer who will know your fiances situation and the local practice far better than I do.

      1. I always look for ways to get out of Chapter 13 into Chapter 7. If you are getting married the obvious issue is are your planning to live in HIS house.

      2. Not affected. That one I can answer.

      3. The Chapter 13 trustee MIGHT decide your marriage means your fiance can afford a higher payment and want more. That would depend on the facts and on the local practice, and I don’t know either of these. But that can happen some places.

  • Larry Williams

    August 14, 2014, am31 12:40 AM
    31

    I am sending my final chapter 13 payment this month. It has been a long and I feel unfair ordeal, but I made it. The payments have been $1450 a month. I had run up debt trying to make payments in a lawsuit settlement. When I could not make payments on the settlement anymore I filed. My cars are worn out and my home needs repairs, I desperately need a newer car. Any advice how I should proceed. I filed in 09 and paid the entire 5 years. Thanks.

    • Robert Weed

      Robert Weed

      August 14, 2014, am31 10:36 AM
      32

      Larry:

      Yeah, I HATE chapter 13–your comment explains why. One of the reasons is Chapter 13 is so much worse on your credit than Chapter 7. Almost everybody gets out of Chapter 13 desperately needing to finance a newer car and with a real problem on how to get one.

      I don’t know enough to have any ideas on what you should do now. Your lawyer knows your situation better than I do–they might have some specific ideas.

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