Commonly, folks who are interested in filing Chapter 7 bankruptcy find out that they do not qualify. Often referred to as the “low-income bankruptcy” choice, Chapter 7 requires potential filers to fill out a Means Test to determine eligibility. If the Means Test for Chapter 7 bankruptcy concludes that your income is too high to qualify for a Chapter 7 bankruptcy, there is another option you should consider. 


 

We speak to a lot of middle-income individuals and couples who are fed up with the harassing collection calls and letters from creditors. They constantly receive threats - some creditors say they will garnish their wages, others threaten to put levies on their bank accounts. 

 

In the meantime, these individuals or couples are living paycheck to paycheck, worried that their car might be repossessed or their home could be foreclosed on. When debts pile up to a certain point, it becomes impossible to catch up. 

 

Stress increases and the financial burden can start to affect a person’s job performance. It can lead to a lack of sleep. Arguments with a spouse.   

 

How Does Chapter 13 Help, Especially Since I Still Have to Pay the Debts?

 

This is a common question that people ask. Why would anyone want to commit to paying back all of their debt - especially the debts that they have neglected to pay for months or years now?

 

There are many reasons to file Chapter 13. 

 

Here are some benefits of Chapter 13 to think about:

  

  1. There is only one monthly payment. 
  2. The monthly payment is an amount you can afford. 
  3. Interest on all unsecured debts is stopped.
  4. If you are behind on your mortgage, those payments can be included.
  5. Your car loan can be included (but does not have to be.)
  6. Back child support can be included. 
  7. Any money you owe to the IRS can be included, which means future refunds are yours.
  8. Student loan debts can be suspended.
 

Therefore, if your house is in foreclosure, Chapter 13 bankruptcy could be the solution that saves your home. The same is true if you are on the verge of losing your car to repossession.
 

Example Situations

 

Let’s take a look at a couple of hypothetical situations. 

 

Take, for example, a married female who only has one dependent. Her family income is over $110,000 and she does not own a house nor a car. Her spouse’s debt is minuscule, so it does not make sense for him to file bankruptcy. Her total debt adds up to approximately $80,000. Her Chapter 13 monthly payment ends up being under $1700 per month. 

 

All of her monthly payments before the Chapter 13 filing added up to far more than $1600. Plus, the debt balances continued to grow with interest. 

 

Another example? This time, it is a single man with no children, hence, no child support. He rents the house is he living in and owns his car. There is no lien on his car. He has accrued about $60,000 in debt. His Chapter 13 monthly payment calculates out to approximately $1,000 per month. 

 

This might seem like a large bill to pay, but not only was he paying more than that every month,  he was also facing his wages being garnished. When wages are garnished, one creditor can take up to 25% of your wages. 

 

The final example is a single mom who has fallen behind on her mortgage. She has very little equity in her home and the mortgage company is threatening to foreclose on it. Her car loan has a balance of $13,000 and she has unsecured debts amounting to $32,000. Unfortunately, her income is above the Chapter 7 Means Test, even with deductions for her car and mortgage. 

 

After filing Chapter 13, her monthly payments are only $1,000 per month. That figure includes the monthly payment for her car.  

What Do They All Have in Common Now? 

After filing Chapter 13 bankruptcy, these people all have many aspects of their financial lives in common:

  1. They only make one payment every month. 
  2. Their monthly payment is less than the amount they were paying before filing Chapter 13. 
  3. Their debt balances are decreasing, not increasing.
  4. They no longer have to juggle paying creditors. 
  5. They no longer receive collection letters.
  6. They no longer have to worry about the threat of lawsuits.
  7. They do not have to worry about anyone garnishing their wages. 
  8. Tax levies are no longer a threat. 
  9. They have peace of mind. 

Final Thoughts

Once your Chapter 13 petition has been approved by a judge, you can choose to have your payments deducted from your pay or you can make payments on your own. If your mortgage creditor is threatening to take your home, you must file Chapter 13 bankruptcy before your home is sold in the foreclosure procedure. Finally, many of our clients have been able to finance a car around a year after filing Chapter 13 bankruptcy. 

Are You Considering Filing For Bankruptcy? If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.

Are You Considering Filing For Bankruptcy?

If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.

James Roswold
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James Roswold is a Kansas & Missouri personal injury, workers comp, and medical malpractice attorney.