Figuring out when is the best time to file for Chapter 13 bankruptcy doesn’t have to be hard. In many situations, the person dealing with financial distress has been trying to figure out how to handle their debt for months or even years. The person is constantly juggling money, deadlines, and how they’re going to get it all accomplished. Chapter 13 bankruptcy exists as a solution to allow people in Nebraska to consolidate debt and handle it all in one place at one time. The creditors get dragged into the bankruptcy system and must partake in the 3-5-year repayment plan.
There are some factors to evaluate when figuring out whether Chapter 13 bankruptcy is a viable solution for the financially distressed Nebraskan.
- Good Income, But Not Enough. You always pay your debt on time, but you run into a situation where you never get ahead. The Debt continues to grow with no sign of stopping. On paper, you make good income, but it is not enough to pay down your debt or to build any savings. The Chapter 13 bankruptcy is largely based upon your disposable monthly income or excess monthly income, basically the amount of money you have left over ever month after considering general living expenses.
- Temporary or Permanent Reduction of Income. You were out of work for a short period of time or now have taken a new job with a significant pay cut. Your income no longer stretches as far as it used to, and you have fallen behind on your bills. You do not have an ability to catch up or get ahead.
- Behind on Mortgage or Car Loan. For whatever reason, divorce, job loss, death of a love one, etc., you have fallen behind on your mortgage or car loan. You’ve tried to complete the loss mitigation packet with your mortgage company and have gotten nowhere. You’ve tried to work out a deal with your car lender, but they want too much. The Chapter 13 bankruptcy allows you to cure the arrears, the amount you have fallen behind in your 3-5-year repayment plan.
- Tax Debt. You have recent income tax debt or other tax debt that you cannot afford to resolve through a repayment plan. You can resolve your tax debt by handling it through a Chapter 13 bankruptcy.
- Status Quo Keeps You in Debt Cycle. Iusually spend some time comparing the Chapter 13 bankruptcy with the alternative, which is the status quo. I call it the “do nothing” approach. You always have the option of doing nothing other than what you’re currently doing. However, there is typically no clear light at the end of the tunnel with this option. For example: I had a client who was faced with $2,500 per month in minimum monthly payments. In a Ch. 13 she was able to repay 100% of her debt through a 5-year repayment plan making monthly payments of $1,000 and will be debt free at the end of the Chapter 13 plan.
- Asset Retention. In a Chapter 13 bankruptcy, you keep your property. The plan is funded through post-filing excess/disposable income. Pause before you start liquidating your retirement accounts or other assets before considering Chapter 13 bankruptcy as a viable solution to handle your debt. I have seen countless times where a client liquidates assets to handle debt when they could have retained the asset and still handled the debt.
- Accelerated Debt Recovery. If you successfully complete your repayment plan, you are debt free in 3-5 years. That is a much better situation than paying minimum payments on credit cards indefinitely. I frequently am asked, “how will bankruptcy negatively impact me?” I usually respond with the fact that a Chapter 13 bankruptcy puts you in a better position financially quicker than if you were trying to resolve this with another non-bankruptcy solution.
- Creditors Must Participate. The bankruptcy automatic stay, the provision in the bankruptcy laws that protects you, prohibits creditors from attempting to collect a debt directly from you. What that means is that all the phone calls, collection efforts, and lawsuit stop. The general unsecured creditors (i.e. medical bills, credit cards, consolidation loans, etc.) must file a claim within 70 days of your case being filed in order to participate in the distribution. If they snooze, they lose. Also, it is a lot easier to deal with all your creditors in one place instead of scattered all over the place.
- Stop Garnishments. The garnishment laws in Nebraska allow for 15% to 25% of your gross adjusted wages to be garnished. For some people, this involuntary repayment of debt causes you to default on your other debt such as your house or car. It creates a domino effect. You can get into a Chapter 13 to stop the garnishment and propose a repayment plan based upon your budget as opposed to an unforgiving percentage of your income.
Deciding whether to file a bankruptcy is a complex and emotional decision. Finding the right attorney to work with you to make that decision is crucial. Instead of worrying what will come next, you should meet with a bankruptcy attorney to discover your options for dealing with your financial situation.
If you are someone you know is bracing for or already experiencing financial distress, the bankruptcy attorneys at Koenig|Dunne are here to help.