Chapter 13 Bankruptcy – Nassau & Suffolk Counties, Long Island
A Chapter 13 Case allows individuals with regular income to save their homes from foreclosure and to reorganize their debts.
Chapter 13 is a very effective type of bankruptcy case and is used by individuals in various situations to reorganize and reduce debt. A Chapter 13 bankruptcy case is often used by persons in foreclosure to stop the foreclosure process, including foreclosure sales, so as to cure mortgage arrears over a five (5) year Chapter 13 plan. Chapter 13 is also used by individuals who do not qualify for Chapter 7 relief because they have incomes that exceed the means test based on their household size. Chapter 13 is also used by individuals who have filed for Chapter 7 less than eight years ago and therefore cannot file again in Chapter 7, but could file under Chapter 13, which does not have the same kind of bar to repeat filings. Finally, Chapter 13 is used by debtors who have potential assets that would be potentially sold in Chapter 7, but would not cause the same issues in Chapter 13, where such assets would not be liquidated. Debt other than mortgage arrears, such as credit cards, is also cured under the Chapter 13 plan, often without interest and often according to a reduced pro rata percentage of principal.
a) Initiating a Chapter 13 Case and the “Automatic Stay” – Because under a Chapter 13 case, monthly payments under a plan are intended to cure and reorganize all of the client’s debts, a client’s income and expenses must be carefully calculated for a monthly budget that must allow for payments to satisfy the monthly amount required under the Chapter 13 plan. Documentation for such income in terms of pay stubs, bank statements, and affidavits of contribution need to be obtained to demonstrate that the client can potentially sustain the payments required in the case. If the case is not the client’s first Chapter 13 bankruptcy case, the client may need to file an affidavit of changed circumstances and potentially file a motion to extend the stay past the initial 30 days of the case. The plan must account for the curing of a client’s mortgage arrears, car loan arrears, credit cards, taxes and student loans over a five (5) year plan that is binding on the client’s creditors. The filing of a Chapter 13 case will instantly cause an “automatic stay” to go into effect which will stop all creditor activity including imminent foreclosure sales or repossessions. However, while the Chapter 13 case allows a long period under a plan (see below) to pay pre-petition arrears, the debtor is required to remain current with post-petition payments for secured debt such as mortgages and car loans. A secured creditor not getting regular post-petition payments, such as mortgage payments or car loan payments, can move for relief from the automatic stay, which in a Chapter 13 case would usually be contested, with the debtor seeking to quickly cure the post-petition amount in arrears.
b) The Chapter 13 Plan – During the Chapter 13 case the client will on a monthly basis go back to making post-petition mortgage payments and, in addition, the client will make Chapter 13 plan payments to a court-appointed trustee. The combination of such payments will allow the client not to fall further behind in mortgage arrears while at the same time catching up and curing the arrears that existed before the filing of the case. A budget, a Chapter 13 plan and bankruptcy schedules, as well as significant other documentation, need to be submitted to the Chapter 13 trustee and Bankruptcy Court as part of the process necessary to confirm the Chapter 13 plan. While secured debt, such as mortgage arrears, and priority debt, such as taxes, need to be paid in full over the plan, unsecured credit card debt could be paid at a percentage on the dollar. Plans that pay unsecured creditors in full, do not necessarily have to offer interest, and are more easily confirmed as “100% plans”, while plans that do not pay unsecured creditors in full are considered to be “percentage plans” and are usually more difficult to confirm.
c) A Chapter 13 Case Compared to a Chapter 7 Case – A Chapter 13 does not usually expose the debtor to the same risks, in terms of potential asset or income issues, as a Chapter 7 case. Although Chapter 13 requires some level of repayment or cure over a 5 year plan, while Chapter 7 simply eliminates the debt, Chapter 7 is not available to many debtors. If a debtor potentially has income that exceeds the means test, or assets or transfers that may be potentially be pursued by a Chapter 7 trustee, the client may often need to or prefer to file under Chapter 13.
d) A Chapter 13 Case Compared to a Mortgage Modification Negotiation – A mortgage modification negotiation seeks to lower a client’s monthly payment, restructure the mortgage, and spread mortgage arrears over the remaining balance of the mortgage loan. While a modification seeks goals, that if obtained exceed the goals in a Chapter 13 case, modifications are not always obtainable because they are voluntary. Some lenders are difficult to negotiate with and some repeatedly deny a homeowner a modification or take a positions that make it much more difficult to engage in modification negotiations. By contrast the 5 year Chapter 13 plan is imposed on the lender, who has no choice with accepting regular post-petition mortgage payments, as long as the debtor continues to stay current in Chapter 13 by paying both the lender, with post-petition mortgage payments, and the Chapter 13 trustee, with monthly payments due under the Chapter 13 plan.
e) Repeat Chapter 13’s – If you have had two (2) or more chapter 13 cases pending before the Bankruptcy Court in the last year a Chapter 13 case may not be able to stay a foreclosure sale against your property. To obtain a stay in such situation (of two or more pending bankruptcies in the last year) you will need to retain a bankruptcy attorney to quickly move by Emergency Order to Show Cause in front of the Bankruptcy Court and demonstrate strong financial “changes in circumstances” that positively affect your chances of success in another Chapter 13 case. However, if you have had only one (1) chapter 13 case pending within the last year or a chapter 7 case pending within the last year, it is possible to file another chapter 13 case, as long as you have a verifiable “change in circumstances” or an increase in income necessary to sustain the case. Where the one (1) previous case was a chapter 13 case, a motion, proving the change in circumstances, is necessary to be made and granted within 30 days after the bankruptcy filing to extend the stay.
f) “Cram down” Motions to Reduce Second Mortgages – Secondary loan “cram downs” (or “strip downs”) are a possibility in Chapter 13. If you have a secondary mortgage or home equity loan which is totally unsecured, in a Chapter 13 case it can be deemed to be an unsecured debt and paid at a vastly reduced amount. To accomplish this we need to file a motion in the Chapter 13 case and show the Court the complete lack of equity in the property to support the secondary mortgage. Assuming the motion is granted, the client needs to stay in Chapter 13 for the full duration of the plan for this form of relief to have permanent effect. If you believe you quality for such a motion and believe that you can stay long term in your Chapter 13 case until its completion, than a secondary loan cram down is potentially a powerful method of reorganization and should be discussed with us.
g) Objections to Claims – Amounts listed in a Chapter 13 plan need to be based on the proofs of claim filed by the debtor’s creditors. To the extent that a creditor files a proof of claim that significantly exceeds the amount scheduled by the debtor, and the debtor disagrees with such amount and has proof that such amount is incorrect, an objection to the claim can be filed, which if successful would reduce or completely expunge the claim.
h) Student Loans in Chapter 13 – Because a Chapter 13 plan can potentially allow a client to pay only a relatively small percentage of their unsecured debt, student loans which are not dischargeable in bankruptcy, can at least have relief in the form of a reduced payment for the 5 years of the plan. Although this debt, unlike virtually all other debts, would still be owed in terms of the portion of the debt that was not paid under the 5 year plan, the client if they can not negotiate a better deal, can refile another Chapter 13 case after concluding the initial case. Thus, a client, through successive Chapter 13 cases, may potentially obtain a long term ability to stretch out and slowly pay down an overwhelmingly large student loan.
i) Concluding a Chapter 13 Case and the Bankruptcy “Discharge” – At the end of the Chapter 13 plan which is usually five (5) years or sixty months (60) in duration, but can be paid earlier, the client’s debt is usually “discharged” or legally forgiven. Prior to the issuance of the discharge order the Chapter 13 trustee needs to acknowledge that the debt was paid in full pursuant to the terms of the plan and that all recognized claims in the case were paid. The client needs to do the 2nd round of credit counseling, which needs to be filed prior to obtaining a discharge order. Most Chapter 13 cases are highly effective in giving clients an opportunity to reorganize and reduce debt over a protracted time while being protected from their creditors.
j) The Potential Benefits of Chapter 13 and the Role of Our Law Office – The Law Office of Ronald D. Weiss, P.C. regularly represents its clients before the United States Bankruptcy Court in Chapter 13 cases, including in the filing and amending of numerous documents and the plan needed to proceed in Chapter 13. The Law Office of Ronald D. Weiss, P.C. represents Chapter 13 bankruptcy clients in the Eastern District of New York (which has jurisdiction over Suffolk County, Nassau County, Queens County, Brooklyn, and Staten Island, NY) and in the Southern District of New York (which has jurisdiction over Manhattan, Bronx and Westchester County, NY). Chapter 13 cases, like other types of bankruptcy cases can effectively help a client deal with its debt, however, a Chapter 13 case can be complex, and to effectively proceed in a Chapter 13 case an individual should be represented by an experienced bankruptcy attorney. The Law Office of Ronald D. Weiss, P.C. can discuss and advise you about Chapter 13 bankruptcy and how and whether it can help your particular circumstances.
A Chapter 13 reorganization is an involved and potentially lengthy bankruptcy case and requires special knowledge and expertise. The Law Office of Ronald D. Weiss, P.C. regularly represents its Long Island and New York clients in Chapter 13 cases before the United States Bankruptcy Court and can review with you issues relevant to a potential Chapter 13 case.
Our consultations are free, the advice may be invaluable.
Please call us at (631) 479-2455, or e-mail us at firstname.lastname@example.org for a free consultation with an attorney, at our Melville, Long Island law office to discuss Chapter 13 bankruptcy options in greater detail.