Chapter 13 bankruptcy is a form of legal debt relief that can stop automobile repossession and offer you time to reorganize your debt in an effort to pay back your creditors. What many individuals don't realize when they contact a Elk Grove Bankruptcy Lawyer, is that in some cases you can use Chapter 13 bankruptcy to lower your car payment. The process takes some time and organization, but with a strong will to reduce the debt it is possible. Here are the steps involved.
Filing Chapter 13 bankruptcy in California
Chapter 13 bankruptcy in California is often referred to as the "wage earners" bankruptcy in that you can file for this form of legal debt relief even if you have a steady income and are not completely broke. You are eligible to file for Chapter 13 bankruptcy so long as you have less than $394,725 in unsecured debts and less than $1,184,200 in secured debts. The first step is to file your bankruptcy petition with the US Bankruptcy Court in your district. The petition will include all your asset, debt, and income information along with a case filing fee. You should always contact a local bankruptcy attorney for assistance with filing, as only a licensed bankruptcy lawyer is allowed to advise you on how to fill out the bankruptcy petition.
Paying your Auto Loan
Unless your Sacramento bankruptcy attorney advised you otherwise, you should continue making payments on any secured property that you wish to keep such as your automobile. If you want to keep your car and owe money through an auto loan, you must either pay the entire balance in full over time. A chapter 13 plan can help you to lower your payments.
Cramdowns in bankruptcy are an extremely efficient way of lowering car payments for consumers who owe more than the actual fair market value of the car. A cram down is only available in Chapter 13 bankruptcy and works by comparing your loan value and the market value of the car. Your loan balance will be reduced or "crammed down" to match the actual value of the car. The legal reasoning behind this is that the market value of the car is what the loan is "secured" by.
Getting Bankruptcy Help
Using Chapter 13 bankruptcy to lower your car payments isn't easy and requires a good organization of your documents, timing, and the assistance of a California bankruptcy attorney to ensure you do everything legally required. By hiring a bankruptcy lawyer, you'll ensure that you are able to keep your automobile through bankruptcy even if you aren't successful in lowering your payments.
Citrus Heights bankruptcy attorneys are often asked if a homeowner going through reorganizational bankruptcy can sell their property during a Chapter 13 bankruptcy. While there is nothing in the US Bankruptcy law preventing you from selling the property during Chapter 13, there are significant questions to ask first. If you decide that selling a home in Chapter 13 bankruptcy is the best option at your disposal there are steps that you must follow in order to obtain the approval from the Bankruptcy Judge.
Should I Sell My House in Bankruptcy?
SHOULD you sell your house during your California Bankruptcy Chapter 13 repayment period is the exact question you should be asking? We know that it is legal to do so, but selling your home before your Chapter 13 bankruptcy is finished may not be beneficial to you at all. In fact, it may undermine the entire point of declaring Chapter 13 bankruptcy in the first place.
Once you file Chapter 13 bankruptcy, you are awarded an automatic stay that immediately halts all debt collection attempts against you. This includes home foreclosure, and therefore, the case is a tool to prevent the sale of a home while giving you a chance to repay part or all of your debts. With this in mind, Citrus Heights bankruptcy attorneys consider the strong benefits of waiting on selling a home until you have received a discharge.
How to Sell Your Home in Chapter 13
In order to sell your home in Chapter 13 bankruptcy, you must obtain permission to do so from the US Bankruptcy Court where you filed for debt relief protection. In order to initiate the sale of your house during chapter 13 bankruptcy contact your bankruptcy lawyer who can help you present the bankruptcy trustee with the proper notice of intent, as well as, to ensure the terms of the sale are approved by the bankruptcy court. The purchase price must be fair based on the current market value and conditions. In addition, creditors must be notified and giving a chance to overbid for the purchase of the home.
Property Transfers in Bankruptcy
All changes in income or transfers of property during your Chapter 13 bankruptcy need to be disclosed to the bankruptcy trustee. Ensure you speak with a bankruptcy attorney in Sacramento California before you consider selling your home in Chapter 13 to ensure you are taking the best steps towards living debt free.
Some debtors look forward to tax time because that is the time that they receive large tax refunds from the IRS. Instead of receiving their fair share of monthly earnings, these taxpayers believe that their savings would be better off in the hands of government. Meanwhile many of these same workers are struggling to pay their monthly expenses. In a chapter 13 bankruptcy, tax refunds are factored into determining how much a debtor can afford to pay creditors. Essentially, tax refunds are considered disposable income unless some further explanation is provided to the chapter 13 trustee. The problem is that the loss of these hard earned funds can offset the whole point of a reorganization, to give the debtor a fresh start.
Monthly Earnings Should be Available on an Immediate Basis in Bankruptcy
Taxpayers that are overwithholding can still make adjustments to their withholdings in the middle of the year. Doing so will make more wages available to a debtor for household expenses and other necessary costs of living. In turn a debtor's annual tax refunds will be much lower. And if the amount of the annual refund is less than $1,000-$2,000, most trustees will consider allowing a debtor to keep the funds. Overall this kind of change makes keeping up with monthly chapter 13 payments and monthly living expenses easier.
Chapter 13 Bankruptcy Encourages Debtors to Track Spending
In a sort of renaissance style chapter 13 participants need to reexamine their spending habits. Many begin this makeover for the first time in their lives and are glad that they finally do it. That is because you can't possible meet all of your obligations if you don't know what you are spending your money on. Once you start checking in on the categories that are costing you the most you can take control of your wealth building ability. Paying down debt and making sure that you have money available for health care, car and home maintenance, and clothing, can go a long way to keeping you on a steady financial path. Budgeting during bankruptcy is something that an Elk Grove Bankruptcy Attorney can help a debtor prepare for.
Filing Tax Returns on Time in Chapter 13 Bankruptcy
Since the IRS needs to ensure that you are not falling behind while you are in chapter 13 its a good idea to timely file returns. Otherwise your debt problem can be compounded by further debt. The taxing authorities do not have to wait on seeking payment from debtors that incur post petition tax debt. By reviewing and filing taxes early in the year, a debtor has the opportunity to plan and pay for any extra taxes that are due.
One of the main reservations bankruptcy law firms see from individuals regarding filing for Chapter 13 bankruptcy is the initial uncertainty surrounding how long the bankruptcy will last. Chapter 13 bankruptcy requires debtors to enter into a repayment plan with the US Bankruptcy Courts, paying monthly installments to the bankruptcy trustee who then divides the money among eligible unsecured creditors. How long your Chapter 13 will last depends primarily on how much debt you owe and how much you have earned over the past 6 months previous to bankruptcy.
Steady Income Required
Chapter 13 bankruptcy is an excellent debt relief tool, as it allows you to payback only some (and sometimes none) of what you owe back to creditors. In order to qualify for Chapter 13 bankruptcy, you need to have a regular form of income that the Bankruptcy Courts can utilize to ensure that creditors are repaid at least a small portion of the total debt. This income doesn't necessarily have to be from W-2 wages, but can come from business earnings, social security, unemployment insurance payouts, or other forms of steady, reliable income or assistance from family.
Qualifying for a 36 Month Plan
When the bankruptcy courts look at your income they take the average of the 6 months immediately prior to you filing your petition for bankruptcy protection. This figure is then compared to the median income in your state with your family size considered. If your income is below the median income for your state, then you will qualify for a 36-month bankruptcy repayment period. This time frame is called a plan duration or a commitment period. You can actually finish your Chapter 13 plan earlier than 36 months if you are able to pay the total of the claims amounts filed in your case in a shorter period of time.
Why You May Want to Extend the Length of Chapter 13
Alternatively, if your income is above the median income for the state in which you file for bankruptcy the repayment period will be 60 months, the most time awarded to any Chapter 13 repayment plan. While you may be thinking "the shorter amount of time, the better", when approaching filing for Chapter 13, there are situations that may warrant opting for a longer commitment period. These situations include if you need to catch up on mortgage or auto loan payments, you need time to pay back large sums of IRS or state tax debt during bankruptcy, or if the bankruptcy court determines that a 36-month period is too short based on the amount of recent income you have earned.
Timing Could Make the Difference
The old adage, "timing is everything" certainly plays a part in filing for Chapter 13 bankruptcy. With the way bankruptcy courts in the United States review income (average of the previous 6 months), then it's obvious that when you file for Chapter 13 bankruptcy is critical. It's smart to seek the advice of a bankruptcy attorney who can walk through your income expectations for the near future, in addition to, your previous income and advise you on the best time to file your bankruptcy case. If you have recently experienced a drop in pay, for example, it may make sense to move forward at once with filing. However, if you have recently received a large sum of money from a bonus or commission, it may make more sense to wait until your income goes down or stabilizes to ensure you receive a shorter commitment period.
To learn more about the Chapter 13 process, contact our Sacramento bankruptcy office today.
Chapter 13 bankruptcy requires fiscal discipline and the willpower to stick to a budget in order to eliminate your debt. It's tough, but countless individuals have been through the process, eliminated their debts, and received a fresh start with their finances. People find Chapter 13 bankruptcy difficult mainly because they aren't accustomed to staying on a rigorous budget, with any excess income being paid to all their creditors. While normal living expenses will be included in your Chapter 13 bankruptcy, extraordinary or lavish expenses may be too much for the trustee to stomach.
When you file Chapter 13 bankruptcy, monthly income not devoted to normal living expenditures like rent, auto payments, groceries, utilities, clothing, and entertainment, is considered disposable income. Disposable income should be paid to the bankruptcy trustee in order to pay back creditors. Typically, a tax refund will fall under the category of disposable income and be ordered by the bankruptcy trustee to be intercepted to be included in your bankruptcy estate.
Keeping your Tax Return in Chapter 13
In certain situations, you may be able to keep your tax refund while you are still in your Chapter 13 commitment period. The best way to do so is to be able to provide proof that you need to keep your tax return to ensure that you make your Chapter 13 payments while also maintaining all your other obligations.
Alternatively, a debtor can balance their tax withholdings from their monthly pay so that they don’t receive large tax refunds at the end of the year. Doing so allows debtors to utilize these valuable funds during the year when they need them most.
If you are expecting a large income tax refund, you should notify your bankruptcy attorney. A bankruptcy lawyer may be able to help you modify your Chapter 13 plan to excuse a tax refund.
Bankruptcy Attorney Assistance
In conclusion, it's unlikely that you will be allowed to keep your tax refund check while in Chapter 13 bankruptcy unless you have two things: a really strong need for the money that can be documented and a well-written modification that excuses tax refunds from being handed over to the bankruptcy trustee. For the later of the two, a California Bankruptcy Attorney is a strong necessity, as they will likely have experience with modifying Chapter 13 plans.
Declaring Chapter 13 bankruptcy is the process by which an individual compiles all debt owed, along with income and assets, in order to establish a repayment plan to pay back what he can afford over a period of 3-5 years. During this period you make payments to the bankruptcy trustee. Obviously, a lot can happen over the course of five years. Unanticipated life changes such as a sudden illness, loss of job, or unexpected auto repair bills can upend a Chapter 13 bankruptcy repayment plan fairly quickly. Luckily, the US Bankruptcy Code foresaw unexpected life changes and set up procedures on how to deal with them during the course of the Chapter 13 repayment period.
Contact Your Chapter 13 Bankruptcy Attorney
Hiring a Citrus Heights bankruptcy lawyer can not only vastly increase your chances of having your Chapter 13 bankruptcy case approved but can also guide you through the process of requesting a chapter 13 bankruptcy repayment modification. Your first call when something comes up that will prevent you from making the entire Chapter 13 repayment amount should be to your bankruptcy attorney. Your attorney can file a motion with the bankruptcy court to explain how your circumstances have changed and request a modification of your Chapter repayment plan after it has been confirmed. If the changes have occurred before your Chapter 13 plan has been confirmed, your bankruptcy attorney can help you with filing an amended plan in the bankruptcy court.
Limitations of a Chapter 13 Plan Modification
Priority debts such as taxes, alimony, and child support must be paid during your chapter 13 bankruptcy repayment. Some debtors may run into trouble when attempting to modify their Chapter 13 payments if the plan payment amount is just barely sufficient to pay off required debts. Alternatively, if your plan is heavy on nonpriority unsecured debts then there more room to reduce the plan payment to accommodate hardship periods that the debtor might be dealing with in their lives. Modifications to your Chapter 13 plan don't always work if you can't complete your entire repayment plan. If this becomes obvious, then you have the options to convert your case to a Chapter 7 bankruptcy or to request a hardship discharge which, if approved, will allow your debts to be discharged and the Chapter 13 payments to end.
Chapter 13 Modifications
Discussing your options early on with your bankruptcy attorney when life throws unexpected events your way is an absolutely necessity. If you fall behind on any unsecured debt payments or your Chapter 13 repayment, the bankruptcy court will make a motion to dismiss your case. Dismissal of your Chapter 13 bankruptcy case will result in no discharge of debt and a loss of the administrative and legal fees already paid. If you're considering filing for Chapter 13 bankruptcy, contact your local Bankruptcy attorney to find out if it's the best form of debt relief and what you'll need to begin the process.