Ch 13 or Ch 7 - Pros and Cons - Car Payment - Fees

[alo]

My particular situation is that I am over the medium income and most likely would not currently qualify for Ch 7. But, the company I work for is on hard times and I wonder if I will be forced to take another pay cut or worse. With this looming, I have decided to postpone filing for a few months to see what happens.

I am not making cc payments (as of 9/12) and I have been budgeting and collecting the necessary paperwork for BK, perusing this forum and basically pre-planning. I also purchased a car because we had an old clunker. And, I am interviewing attorneys (3 so far / one more planned). Hopefully, I will not get any judgements before we can figure out our income situation.

I have read a few posts that raised some questions for me...

1 - If you qualify for Ch 7, why would Ch 13 ever be a better option than Ch 7?

2 - Will a car payment be something that automatically gets put into a Ch 13 plan?

3 - Is there any benefit to paying for the attorney upfront in a Ch 13?

TIA

[AngelinaCat]

It appears you are well thought out so far.

1 - If you qualify for Ch 7, why would Ch 13 ever be a better option than Ch 7? Not in my opinion. C7 gives a quick new start.

2 - Will a car payment be something that automatically gets put into a Ch 13 plan? I believe so unless you wish to give it back. I'm a C7 person.

3 - Is there any benefit to paying for the attorney upfront in a Ch 13? NO! Once paid, seems they forget good service. Hold a club over them.


Our biggest problem was our lawyer who guided us not at all. I would wait as long as possible. Hopefully things for your company will get better. Pleased to see you thinking this through.

[alo]

Thanks, AngelinaCat. I am hoping I qualify for a Ch 7 because I would prefer to be done with it but if it's not in the cards...I'll do what I have to do...which is file BK regardless.

[keepsmiling]

1. If you needed to save your house or other asset, this might be a reason to go with a 13 instead. For a few people, they just feel better paying off at least part of their debt. (Not advocating or judging, just mentioning something that comes up occasionally )

[LadyInTheRed]

Some reasons why somebody who qualifies for a 7 would file a 13 are:

(1) They have non-exempt assets that they want to keep. A Chap 13 allows you to pay the non-exempt value of those assets over the life of the Chap 13 plan.
(2) They have arrears on secured debt and want to force the creditor to take payments in the Chap 13 instead of risking foreclosure/repossession if they can't work out an arrangement with the creditor.
(3) They have an underwater 2nd or 3rd mortgage that can be stripped in a 13.
(4) They made a voidable transfer of assets to a family member and want to pay that off in a 13 instead of letting the trustee go after the family member for a return of the assets.

Filing a 13 when you are eligible for a 7 means that your Chap 13 will likely be a difficult one. The reason for chosing a 13 should be carefully evaluated. Is keeping that asset really worth being in Chap 13 for 36 to 60 months? If you have to file a Chap 13 to keep the asset, can you really afford to keep the asset after the BK is done? If you made a transfer to a family member, could your family member afford to pay its value to a Chap 7 trustee and have you remiburse them after your discharge? Or, could you wait to file until the transfer is no longer an issue?

Just some examples. I am sure there are others.

Re attorney fees, remember that depending on your situation, whatever gets paid to your attorney through the plan, may simply reduce what goes to unsecured creditors.

[TheBajan]

1 - If you qualify for Ch 7, why would Ch 13 ever be a better option than Ch 7?

By choosing a 13, we were able to strip our second mortgage. That was a payment of $780 a month for the next 15 years. Instead, we pay our trustee less than $300 a month for 3 years. Choosing a 13 allowed us to keep non-exempt assets like our two autos that we owned free and clear. Most importantly, it allowed us to keep a rental property that generates 20% of our monthly income. We also own it free and clear. Had we chosen to go with a seven, we would not have been able to strip the second, we would have lost one of our autos, and we would have lost the rental property.

IN OUR CASE, choosing a 13 was a not brainer. I understand that every case is different and ours is an unusual situation. For most people, a ch 7 is usually the better option and offers an immediate fresh start. Being in a 13 means that we still have to wait for our new beginning but it's still a thousand times better than the stress before we filed.

2 - Will a car payment be something that automatically gets put into a Ch 13 plan?

I don't know enough about this to help you.

3 - Is there any benefit to paying for the attorney upfront in a Ch 13?

No.

[bcohen]

1 - If you qualify for Ch 7, why would Ch 13 ever be a better option than Ch 7?

2 - Will a car payment be something that automatically gets put into a Ch 13 plan?

3 - Is there any benefit to paying for the attorney upfront in a Ch 13?

1. People who otherwise qualify for Chapter 7 might file for Chapter 13 in order to catch up arrearages owed on secured debts (car loans, mortgages, etc.) or arrearages owed on nondischargeable debts (student loans, back child support, etc.). If you are contemplating filing for Chapter 13 simply to keep a car, don't. Once you have a filing date set in mind, you can quit paying on the car, and just before the payment is 30 days late, then file for Chapter 7, and the automatic stay will protect you from having the car reposessed. If you play your cards right, you can drive it payment-free for a good 3 to 4 months. Then buy a "beater car" with the money you saved by NOT paying the auto loan.

2. A car payment can certainly be paid through a Chapter 13 plan, however if you are filing for Chapter 13 solely because you want to keep a car that you cannot afford, that is very foolish.

3. There is zero benefit to paying the attorney upfront in full for a Chapter 13. Most people pay the attorney fees through the plan. This is actually better, because the attorney then has some "skin in the game" to make sure your plan is feasible and that if any problems arise, he will assist you with them, because he doesn't want to see you convert to a Chapter 7 and discharge his fees. (Note that in a Chapter 7, if you use an attorney, you must pay the fees in full upfront, because otherwise the attorney fees would end up being discharged.)

[IBroke]

1 - If you qualify for Ch 7, why would Ch 13 ever be a better option than Ch 7?

By choosing a 13, we were able to strip our second mortgage. That was a payment of $780 a month for the next 15 years. Instead, we pay our trustee less than $300 a month for 3 years.

I still can't believe how lucky we are in our district. My mother would have had to file CH7 in order to file CH13 later on because she had too much debt to qualify for a CH13.

Now, she can simply file CH7 and strip her $150K second mortgage. That mortgage alone would have been almost $1,200/month - IF we could have afforded it which we didn't..

[TheBajan]

I still can't believe how lucky we are in our district. My mother would have had to file CH7 in order to file CH13 later on because she had too much debt to qualify for a CH13.

Now, she can simply file CH7 and strip her $150K second mortgage. That mortgage alone would have been almost $1,200/month - IF we could have afforded it which we didn't..

Yes... I've heard that about middle Florida. I think you guys are about the only place in the country that is able to strip a second in a ch 7. I count my blessings here though. I've got a good plan and managable payments. It could have gone much worse for me.

Cheers!