Chapter 13 Bankruptcy Information

The most recent court opinion, In re Scantling, written by Bankruptcy Judge Michael G. Williamson, agrees that a debtor can file a Chapter 20 and strip his or her second mortgage (or whatever is left of it) despite not being eligible for a discharge.

A Chapter 20 Bankruptcy is a slang term used in the bankruptcy world.  When debtor files a Chapter 7 and receives a discharge of all dischargeable debts, then follows the Chapter 7  with a Chapter 13 bankruptcy.

The most pressing question in the bankruptcy world is whether a debtor can strip a second mortgage in its entirety by using the Chapter 20 process.

Do you receive late notices and collection letters in the mail?  You probably opened them at first, but now do you just throw them in an unopened pile, hoping to deal with them later – and later never comes?

Are you tired of explaining why you have not paid a bill, embarrassed telling complete strangers your personal tragedies?  Millions of people behind in their bills do not look forward to opening the mail, answering a phone or speaking to bill collectors.

Did you know you could modify the way all your debt is collected?  Yes, all your debt.  11 U.S.C. 362.

Yes, Virginia, you CAN change your Chapter 13 bankruptcy payment  if something changes in your situation.

Chapter 13 requires a monthly payment from three to five years.  It allow you to cure arrearages for mortgages, car loans, taxes, or family support, or pay what you are required to pay under the Means Test.  A portion of the money may go to general creditors, like credit cards. 

There’s a common fear that those payment is written in stone for the full length of your case.  That’s just not true.

Casinos would go broke if people acted completely reasonably with money.  Instead, players go bankrupt and the house always wins.  Banks have learned to play the same games.

Banks are gradually turning the consumer financial world into a casino.  I don’t mean just the way they turn every loan into a chip in a huge game of chance like the one that crushed the real estate market last decade.  Although that doesn’t help.

No, what I mean is that the way people think about and use money is becoming more casino-like and the banks are the driving force.

Lie #3: If You File for Bankruptcy, You’ll Lose Everything You Have.

Truth-o-Meter:

In the vast majority of cases, nothing could be further from the truth. The fact is that most people who file bankruptcy don’t lose anything except their debts.

Chapter 13 bankruptcy filings often requires that a filer pay something every month to a trustee.   The trustee distributes those payments according to a court-approved plan.  Nothing in the Bankruptcy Code requires a minimum payment, a minimum dividend, to be paid to any general unsecured creditor such as like a credit card.  They often get zero.

The required payment to a trustee is based on a filer’s Projected Disposable Monthly Income.  For a below-median filer, this is based on expected income and expenses over the next few months based on information from the recent past.  Above-median filers are “blessed” with having to pay the results of the Means Test, Form B22C.  Both filers may adjust for virtually certain expected changes.  Above-median filers could end up paying nothing for five years.  Below-median filers have to pay something.  (I smell a rat, but that’s another blog.)

Lie #2: Everyone Will Know You Filed for Bankruptcy

Truth-o-Meter: 

Unless you’re a prominent person or a major corporation and the filing is picked up by the mainstream media, the chances are very good that the only people who will ever know that you filed for bankruptcy are you, your attorney, your creditors and the people you personally tell.

While it’s true that your bankruptcy is a matter of public record, so many people have filed–5,652,969 between 2006 and 2010–unless someone is specifically trying to track down information on you, there is almost no likelihood that anyone will even know you filed.

Last year U.S. Representative Steve Cohen of the Ninth District of Tennessee introduced a bill called the Private Student Loan Bankruptcy Fairness Act of 2011. The bill would make private student loans generally dischargeable in bankruptcy as a way of addressing the mounting student debt crisis that many have written about. The bill was referred to a subcommittee in July 2011, and there it still sits awaiting further action. So, I called the Congressman Cohen’s office today, and he responded by email with the following comment:

If you’re in an active chapter 13 case, or contemplating a filing, you may have your eyes on the potential sale of your real estate down the road. The timing of your decision is critical.

In recent months, I’ve had a number of people come to my office with a real estate deal on the verge of closing but a foreclosure sale looming within days. Filing a Chapter 13 bankruptcy on behalf of my client wouldn’t be so difficult but for the fact that the sale is scheduled to close within the next week or so.

Consumer Bankruptcy Counseling is now available for $5 from the website: www.consumerbankruptcycounseling.info.  In 2005, Congress required all individuals wishing to file bankruptcy to first undergo a “Credit Counseling Briefing.” This counseling session is supervised by the office of the US Trustee and must be completed within six months prior to the bankruptcy petition date.  Credit counseling is supposed to be done by an approved non-profit agency but can be conducted online over the Internet.