Philadelphia Chapter 13 Bankruptcy Lawyer
Relief under Chapter 13 of the Bankruptcy Code is appropriate for individuals who have a significant income or assets, and they need to reorganize their debts. Chapter 13 essentially tries to solve a cash flow problem for the debtor. Although you may be making money, your debts may be too significant to make a dent in them, and you need to reorganize. Chapter 13 allows you to pay off, or discharge, all or most of your debts within five years.
The first thing that clients ask is whether they’re a Chapter 7or a Chapter 13. This question can be complicated, and only a competent Bankruptcy Attorney can answer it, but here’s a simple, two-step rule of thumb that may give you a better idea.
Questions That Will Be Asked
First, ask yourself whether your household makes more than the average household income in your state, based on your family size. You can find a list of state median family incomes by family size at the government’s census website here: http://www.census.gov/hhes/www/income/data/statemedian/. For example, the average income for a two-person household in Pennsylvania in 2011 was $54,816.00, whereas in New Jersey it was $70,238.00. Therefore, in Pennsylvania, if you make more than $54,816.00 as a two-person household, you may have to file Chapter 13 instead of Chapter 7. But if you make less than that average, you qualify for Chapter 7. If that is the case, you have the option to file under either Chapter 7 or Chapter 13, so next you have to decide which option is best for you.
Second, if you qualify for both Chapter 7 and Chapter 13, you will generally want to file Chapter 13 if you have significant assets, especially if you are in arrears. The biggest asset that most individuals own is their primary home. For example, if you own a home valued at $200,000.00, and your mortgage balance is at $100,000.00, you have significant equity in your home, because if you sold your house, you would stand to gain around $80,000.00 to $90,000.00, depending on closing costs. If that is the case, then you may want to file under Chapter 13, especially if your mortgage is in arrears.
Lawyer for Chapter 13 Bankruptcy in Philadelphia
The biggest difference between Chapter 7 and Chapter 13 is that under Chapter 13, you are allowed to make up the arrears that you have accumulated in a secured asset over a five year payment period. For example, if you haven’t paid your mortgage in a year, and the bank has stopped taking payments and moved for foreclosure because you owe $30,000.00 in arrears, Chapter 13 may be your best and possibly only shot at saving your house. Upon filing of the bankruptcy, an automatic stay goes into effect which protects you against all creditor actions, including a foreclosure and Sheriff’s sale, if you act in time.
However, saving a house that is in arrears is generally very expensive, and few people are prepared to resume that financial responsibility. Individuals who are behind on their home have not paid the mortgage in a year. In order to save their house, they would have to start making their regular monthly mortgage payments, and in addition, they have to make a Trustee payment each month. Many do not reach the five year discharge anniversary, but some do. You can improve your chances by planning well in advance with a qualified attorney.
Also, beware that the unprotected equity in your house will dictate how much you have to pay to unsecured creditors. As you can see, it can get complicated fast, so if you plan to file for Chapter 13, you should do so with the assistance of counsel.
This content was written on behalf of Greg Prosmushkin.