Why You Should Use Chapter 13 to Consolidate Your Debts When You Have a Higher Income?

What if you make a lot of money but have a lot of debt?

Has a process server shown up at your door yet with a summons and complaint? When you have a higher income, this is a serious problem. If your wages get garnished and you make $9000 per month, then 25% of your check after taxes is a couple of car payments. So now the cars are about to be repossessed. How are you going to get to work? You risk losing that job if you let it move forward.

Have you ever thought that if you could just pay your credit cards what you owe them, you’d be able to handle the payments?

8 Chapter 13 Bankruptcy Pitfalls You Can Avoid

Chapter 13 is a Great Tool, Unless . . . 


There are pitfalls to avoid. Getting your case dismissed when you thought it was your last hope to save your house is a disaster.  Yet, it happens much more often than not.

Pitfall 1: Losing Your Job

Such a no-brainer, yet it may sound like something you cannot avoid. However, we all know that sometimes it is.  If you don’t get along with your boss, take a deep breath.  Take an anger management course.  Take a Tylenol. Take a break. Take a nap. Because it could be a case of lose your job, lose your house. If you’re in a chapter 13 bankruptcy to catch up the arrears on your house, then you must keep up your mortgage payments current and you must keep up your plan payments.  Quit paying either one and your chapter 13 will be dismissed.  Once it gets dismissed, and you no longer have bankruptcy protection, you go back into foreclosure.

Pitfall 2: Don’t Get a Divorce

Again, while it may sound like something that probably can’t be avoided, often it can be. Be the best spouse that you can be. Bring flowers. Bring chocolates. Bring movie tickets. Read, How Full Is Your Bucket?  On my wedding day, the officiant gave me 5 little magic words for when you come home and find the baby in the highchair, his food is everywhere, the dishes aren’t done, and the other kids have homework, and you’re just back from work and the 5 little magic words are: “What Can I DO To Help?”

Pitfall 3: Re-evaluate Your House Situation Carefully Before You File

Before you file the case, you should reevaluate the house situation carefully. Chapter 13s are designed to put you on a seriously Draconian budget. So, unless you’re making great money, a budget that is too tight will ruin your marriage or your relationship to your significant other in a big fat hurry.  Don’t lose your spouse over a house.

If you DO qualify for a Chapter 7 but want to file a Chapter 13 to try to save the house, then your budget will be under a huge strain, there won’t be any money for fun, recreation or vacations and I’ve seen that lead to divorces and split ups over and over again and then neither of you will end up with the house.

Pitfall 3: Make Your Chapter 13 Plan Payment On Time Every Time

Get behind, you’re toast.  Nuff said.

Pitfall 4: Get Health Insurance If You Don’t Have It Yet

If you’re not properly insured, with health, life, auto and disability, you’re an accident waiting to happen. If you get sick or injured, you’re outta there.  If you cannot pay the plan, then you will lose that house. 

Pitfall 5: Not Filing a Chapter 13 When You Should

If you make great money, and if you could just get all of your credit cards to agree to zero interest (0%), then you’d be able to pay everyone no problem, then do it.  That’s exactly what a Chapter 13 can do for you.  If you pay the regular payments it will take forever and you’ll pay almost 3 times what you owe before you’re through.  If you go to a Debt Consolidation, they’ll be able to reduce your interest rates, but not to zero percent (0%).  Paying at zero percent interest (0%) for 5 years usually will cut your payments by a little under half.  Take the deal.

Pitfall 6: Including Your Car 

If you can file a Chapter 13 without having to include your car, then avoid putting it in the Chapter 13 payment plan like the plague. If your bankruptcy gets dismissed, you’ll find that you’re now perhaps months or years behind on your payments on your car.  You’ll also find that you’ve got mega late fees now attached to the car note.  Also the repo guys will be on their way soon after your Chapter 13 gets dismissed for non-payment. I had clients who wanted save a house, but to do that they had to lower the car payment by including it in the 13.  I suggested that they move out from the beginning.  When the case finally got dismissed the balance on the car was approximately twice what it was before filing.

Pitfall 7: Technical Tricks and Traps

Most of these are things your attorney is going to have to be familiar with and help you avoid them.  However, my favorite is one that you can help avoid: In the Central District of California, in Riverside, you are required to pay your plan payments directly to the Chapter 13 Trustee at the hearings until the judge approves your payment plan. This approval is called a Confirmation Order. Your Chapter 13 plan payments are due 30 days after your case is filed and then ever month on the anniversary of your filing date. However, your hearing date will be approximately 45 days after you file.  If for some reason your judge continues your confirmation hearing, it will most likely be for another 45 days.  When you show up to that hearing, you must bring two (2) payments with you to the 2nd hearing, not just 1.  Because 45 + 45 = 90, your plan requires that you pay 3 plan payments by that 2nd hearing date, not 2.  If you don’t bring the 3rd with you, your case will be dismissed.

Pitfall 8:  Mal-Adjusting Your Tax Withholdings on Your Pay Checks

Whenever you pay less than 100% of your credit cards and medical bills and so on through your Chapter 13 payment plan, the bankruptcy trustee will want to intercept your tax refunds as you get them from the IRS every year until your case is over. Phew!

Many people try to adjust the withholdings so that they end up zeroing out their tax refunds. However, if you reduce it too much, you end up creating a new creditor for yourself, and it’s the biggest most powerful collection agency in the world, the IRS. But at least it’s not the meanest, that distinction goes to the Franchise Tax Board of the State of California.

What pitfalls did you encounter?  Pin, Tweet, Plus and Share This Article.


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10 Things You Must Know About Chapter 13 If You Do Not Qualify for Chapter 7

So, Attorney Gandalf has told you that “You Shall NOT Pass!”

That’s what Gandalf in the Lord of the Rings told the Demon-Balrog as it attempted to cross a narrow bridge deep in the Mines of Moria. So now you’ve been told by another attorney that you don’t qualify for a Chapter 7 bankruptcy. You’ve failed the Means Test. Perhaps based on your own research you think your income might be too high. But it’s not like you’re wealthy and or made of money. You’re struggling just like everyone else, just at a higher level of income. At the end of the month, you have the same amount left over as everyone else; nothing.

What now?

Get a 2nd Opinion About the Means Test

I’ve seen cases where a client’s initial consultation with another attorney missed a couple of key items that made all the difference. When you come in for your free consultation, we’ll go over them together. Attorneys are not supermen, we’re fallible.

Okay, I’m not but some are. Some of the lawyers who are newer in the field of bankruptcy might not know all the ins and outs yet. I’ve filed several Chapter 7 cases where the first attorney thought that the clients didn’t pass the Chapter 7 Qualification Test called the Means Test.

Let me have a look at it if you’re in California, maybe I can help you. I’ve been a bankruptcy attorney since 1994 and I’m located in Murrieta conveniently close to Temecula, Riverside, Wildomar, Menifee, Lake Elsinore, Canyon Lake, Santa Ana and San Diego.

Sometimes Your Only Bankruptcy Option is Chapter 13

There are worse things, just ask Gandalf, more importantly ask the Balrog.  But if you have to file a Chapter 13, there are things you must know.  Here are the first 10 that come to mind off the top of my head.
First: It’s not the end of the world.  The sky will not fall. The police will not show up and arrest you (there is no debtor’s prison). Your friends will not laugh at you. In fact more of them have filed or are about to than you might imagine. You won’t walk around with a watermark of a B on your forehead. Frankly, if you make too much money to file a chapter 7 then that’s a good problem to have. You’re going to get to do what you promised to do in the first place; pay your debts.

Second: A Chapter 13 bankruptcy is a bankruptcy with a payment plan attached. If you don’t qualify for a chapter 7, your payment plan must be 60 months unless you’re able to pay it off earlier. You might even be able to strip your 2nd mortgage lien off of your house.

Third: If you don’t qualify for a chapter 7, your chapter 13 bankruptcy has a version of the Means Test too and it is used to determine, at least in part, how much of your unsecured non-priority debts you must pay back through your chapter 13 payment plan.

The definition of unsecured is any debt that is not attached to something that can be repossessed if you don’t make the payments. Priority debts, roughly speaking, are debts that either you owe directly to the government or that the government must pay if you don’t. So for instance, credit cards and medical bills are unsecured. So are student loans. Recent taxes are priority debts, which you do owe directly to the government. Child support is a priority debt too because if you don’t pay, then the custodial parent may be forced to go on welfare. But student loans on the other hand are not priority debts because if they were a lot of people would never qualify for Chapter 13. But that’s a whole nuther ball o’ wax!

Fourth: You may not have to pay all your credit cards, medical bills, student loans, old taxes (under the right circumstances and conditions of which there are many) and so on in full. Depending on your circumstances, you may be able pay off lates on your mortgage, back child support and recent taxes in full while paying only what you can afford to on your credit cards, medical bills, student loans, and old taxes.  Of course, you will still owe any unpaid student loans after your chapter 13 payment plan is over.

So, “it puts a book mark in the student loan.”  ~Anna.

Fifth: The other thing that determines how much of your unsecured non-priority debt is how much stuff you own. If you have accumulated a lot of stuff or a lot of unprotected savings, you may have to buy it back again. So, never ever have unprotected savings. Basically if you could protect only $50,000 worth of stuff but you have $75,000 then you must pay at least $25,000 into your chapter 13 bankruptcy. So, whichever requires you to pay more is the one that you go with.

Sixth:  Even if you have to pay everything in full, 100% of the principal on your unsecured non-priority debts, but if you can do it with 0% interest, then you will most likely have a lower payment than if you go to a debt consolidation program outside of a bankruptcy.

Seventh:  If you pay less than 100% of the principal they will take your tax refunds away from you every year you are in your chapter 13 bankruptcy so sometimes it’s better to bite the bullet do a 100% payment plan.

Eighth: If you owe more than $1,149,525 to secured debts such as your houses and cars, you can’t file a chapter 13.  Or if your credit cards and medical bills and other unsecured non-priority debts come to more than $383,175 then you cannot file a chapter 13. In those circumstances your options are consolidate your debts outside of bankruptcy, settle some of the debt and then file the 13 or try a 7 anyway and hope they don’t try to force you into a chapter 11 where you will have to pay more than $20K in attorney’s fees (and that’s just the beginning).

Ninth: If you’ve been behind on your payments to your houses and cars then in some jurisdictions your bankruptcy judge will require that you pay your regular monthly payment on your mortgage to your bankruptcy trustee rather than directly to your mortgage bank.  In the Central District of California in the Riverside Division, there is one judge that does require this.  Called a conduit payment, it helps to insure that you don’t get into any further trouble with your mortgage payments.  However, if you haven’t been behind in your house payments, then you are still allowed to pay directly even in that Judge’s Court.

Tenth:  A Chapter 13 bankruptcy has a qualification test too, it’s called the feasibility test, which means what it basically sounds like.  You have to be able to pay the payment plan.  If you can’t, then they dismiss your case or suggest that you convert to a chapter 7 bankruptcy.  So, if at a later date you lose a job, or your spouse loses their job or that second job, then maybe you can request that the judge assigned to your chapter 13 reduce your plan payment based on the new lower income or even request a conversion to chapter 7.

I’ll be expanding the list, so if there’s something you think should be on the MUST KNOW List, please put it in a comment below.  I look forward to your thoughts.

Cash for Keys

If you lose your home to Foreclosure . . .

If you cannot afford to pay for your home, if you cannot eventually get a loan modification, if a Chapter 13 just won’t work for you, then you will lose your home.

Bankruptcy Means Test Basics

Bankruptcy Means Test Basics

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Bankruptcy Means Test is the Chapter 7 Qualification Test. However, if you do not qualify for a 7, it is also used to determine the amount of your chapter 13 plan payment. Additionally, it determines the duration of you chapter 13 plan.

If your income is above the median income your chapter 13 payment plan must last for 5 years.

Chapter 13 2nd Mortgage Lien Stripping

Chapter 13 2nd Mortgage Lien Stripping

You may be able to strip your 2nd mortgage or home equity line of credit, Heloc, off of your home in a Chapter 13.

Debt Freedom and Retirement

Debt Freedom is Required for Retirement

If you’re like most of us, you’re planning to retire on your 401k or other similar Retirement plan. And you’re wondering if Walmart and McDonalds will have too many “senior” team members when you get there.

YOUR HOA MAY SUE YOU EVEN AFTER YOUR BANKRUPTCY

YOUR HOA MAY SUE YOU EVEN AFTER YOUR BANKRUPTCY:

THE BANKRUPTCY CODE SPECIFICALLY ALLOWS IT!