Life in Chapter 13
I generally favor internet research, but when I searched for “life in chapter 13” I was shocked. It actually made me ANGRY.
Internet research is often helpful.
Most of my clients tell me they did internet research when they realized they needed help with their finances. They look up a lot of things before they come to see me.
I do it too.
Visit WebMD when I get ill, and am trying to decide if I need to see my doctor.
Even tell him about it when I see him.
We both laugh.
But, the information I see on the internet describing life in chapter 13 is far from funny. And some of it is very far from the truth.
Do your internet research.
But be aware that you can’t believe everything you read.
A lot of it is biased, shaded, designed to steer you in a particular direction, usually so they can sell you “their program.”
Some of it is totally taken out of context
And some if it is just plain lies.
There’s a lot of half-truths and misinformation on the internet about bankruptcy.
But, without a doubt, the number one topic I see that TOTALLY MISREPRESENTS THE TRUTH is about life in chapter 13.
Life in Chapter 13 is very different, depending on where you live.
First, a disclaimer, so I don’t commit the same error I see everywhere on the internet. I practice in Cincinnati, Dayton and Columbus Ohio.
So what I state here is 100% true. For my Courts.
There’s a lot to understanding Life in Chapter 13
The bias in most articles on the internet is clear (to me, anyway).
Falsehoods presented as facts when it comes to bankruptcy really make me angry.
I worry that many people will accept these lies as truth, and this will prevent them from consulting with an expert who will guide them properly.
This could cause them great harm, and they will never know it.
There’s a lot to know about life in chapter 13.
More bankruptcy cases should be filed as chapter 13, not chapter 7 – in my opinion.
As a board certified consumer bankruptcy specialist for over 30 years, I have seen, sadly, too many cases which should have been chapter 13, and weren’t.
The reason for this is that many attorneys themselves do not adequately understand how to get the most out of chapter 13, and so, their clients never know what “could have been” if they filed chapter 13 instead of the “simple chapter 7” that they ended up filing.
(Did you know that bankruptcy is not a required course in law school?
It’s not even on the bar exam!)
Does Chapter 13 Cost more?
First, your financial future is at stake!
Cost should not be a factor in the choice of which chapter to use.
One chapter will be better than the other, it depends on what you need.
Cost is relative.
Chapter 7 is often said to be cheaper.
But cheaper is not always better, and costs can be measured in different ways.
The true test is your long term benefit!
And, don’t forget that your risk of loss needs to be considered as well.
Don’t ignore foreseeable future events.
I see this often ignored in chapter 7 in many cases.
This unnecessarily increases the ultimate cost of 7 to far more than what a chapter 13 would cost.
Will my budget be adequate for my needs?
Will you have an impossibly tight budget?
Will you have to eat ramen every night?
You read this everywhere on the internet.
No! Not True.
In fact, many of my clients have more money in their budget as a result of filing chapter 13 than before.
In some cases, they have MORE in their budget than if they had filed a chapter 7 bankruptcy.
The idea that you will have a very restricted budget is a common myth. But, one that many people believe.
How long does a chapter 13 last?
The textbook answer is 3 to 5 years, but let me give you the real answer, for most people.
Most cases are filed for 5 years.
Because the law mandates a 5 year plan if your household gross income is over the median, or average, for your family size.
For a family of 4, as of November 2018, that is $7,108 per month, or $85,296 annually. This is combined, gross from all sources, so a married couple’s income is combined for this calculation.
If you are above this level, the only option is 5 years.
If you are below this level, you are technically eligible for a 3 to 5 year plan, but if your income is lower, you naturally want the lowest payment you can have.
The lower payment is obtained by using . . . the longest available term, which is 5 years.
So as a practical matter (I file hundreds of chapter 13 cases each year, so I know this is really how it works) most cases will be 5 year plans.
You will likely have a car payment that is for a 5 year term.
You have mortgage payment terms that last for 20 to 30 years.
If you have a car, with a five year term, a chapter 13 plan can pay for that car, and wipe out all your other bills, and finance most of the attorney fees. The plan can do this at the same (or even less) payment per month.
So, having a 5 year chapter 13 plan is a pretty sweet deal.
Who sets the payment amount in a chapter 13 plan?
In part, YOU DO!
Your attorney will (or should) explain that the chapter 13 plan payment is based on a Federal Law formula. You can read more about it here (ultimate guide).
There is no “negotiation” with the creditors, like in a debt management plan.
(and, no tax is paid on the amount of debt you don’t pay, which is often 99% of what you owe!)
In other words, you don’t file a chapter 13 plan and hope the Judge is in a good mood the day you go to court….
(in fact, most of my clients never see the Judge, or the inside of a court room)
The plan payment is calculated by the attorney before the case is ever filed.
I give my clients a very accurate plan estimate the very first time we meet.
There should seldom be much difference between the calculated plan payment and the amount that ultimately gets approved by the Court.
Will my employer be notified? My wages garnished?
There was a time when wage deduction was the rule.
It still is a rule, still on the books, but that is changing.
More and more, we are seeing bank account withdrawal being approved in Chapter 13. And, there is a new form of wage deduction that “masks” the fact that the payroll deduction is for a bankruptcy. So, this is much less of an issue than ever before.
What if I have an emergency during my Chapter 13?
You may have read that you cannot get credit in chapter 13. This is not true.
In fact our local court rules specifically provide a way to get credit while in chapter 13.
Can I get a credit card in chapter 13?
Yes, and if I am your attorney, I will tell you that is EXACTLY what I want you to do as part of my credit rebuilding process.
Of course, there are some common-sense restrictions on use of credit while in chapter 13. You’re not allowed to run up a lot of credit debt while in your plan.
Currently you are allowed to incur credit debt up to $1,000 without the involvement of the plan.
What if your car won’t last for 5 years?
Buy a different car before you file.
It makes no sense to enter life in a chapter 13 knowing that your car won’t make it to the end.
Yet, I see people do this every day.
I want to scream.
The trustee wants to scream too.
(but mostly he just shakes his head tries not to look too disgusted)
The smart thing to do, when you can predict that your car won’t last, is to replace it before you file.
Can I get a different car before I file?
Almost always, yes.
We do this all the time.
Most of our clients do get cars.
We let the old car, the one that won’t last, go back to the bank, and we pay for the replacement car in our plan, and drive it for the next 5 years.
Is the failure rate in chapter 13 high? I read this everywhere.
You will read this, and I read it too.
People twist numbers to make them seem to support whatever conclusion fits their purposes. We all know this.
But, listen to those who have nothing to gain, and you get a different view.
For example, one bankruptcy judge did a study and wrote an article which quoted a 73% success rate. Read his article here: Success in Chapter 13
You will not get useful information for YOUR SITUATION by looking at national averages, especially when they twist the numbers to support their agenda.
You’re better off if you look at real results, by real attorneys, where YOU live.
This will tell you what YOU can expect.
(that’s what’s important, isn’t it?)
So here is some real data:
This year to date (11 7 18) my office has filed 331 chapter 13 cases.
Only one case has been dismissed.
(of the pro-se cases filed so far this year, 15 were dismissed)
My office has a very high success rate.
Nationally the numbers suggest that the success rate is not as high as mine, but a lot of this depends on how you measure success.
I think looking at local results makes more sense.
Our trustees and Judges are very concerned about, and work hard to ensure, that our chapter 13 clients DO achieve successful results.
I am very proud of the results in our districts.
So, don’t believe half of what you read on the internet.
Don’t be frightened, without investigation, of the unknown.
Instead – call me.
I’ll let you know the truth about how you could expect to experience life in chapter 13.