While most consumers in Tacoma call our offices in the hopes of filing Chapter 7 bankruptcy, many of them are surprised to find out that under some circumstances Chapter 13 Bankruptcy in Washington will save them a whole lot more money. Why is that?
Chapter 7 is thought of as a quick opportunity for a fresh start. This is usually true, well, at least with respect to your unsecured creditors. Chapter 13 bankruptcy, on the other hand, is thought of as a repayment plan where you pay everyone back. This is rarely true.
When it come to filing Chapter 13 bankruptcy in Tacoma, the thought is why in the world would I want a repayment plan if I can eliminate everything quickly and just get a fresh start? The answer in short is that you probably aren’t going to pay much, if anything, back to your unsecured creditors and you might do considerably better with your secured creditors, like car and home lenders, and your priority creditors, like the IRS, in Chapter 13.
In a recent blog post, I went over the some of the advantages that Chapter 13 Bankruptcy offers to Tacoma consumers with respect to past due or ongoing debts that can’t be eliminated in a Chapter 7. These benefits include having a mechanism to pay back tax, child support and mortgage arrears interest free and without penalty over a long period of time, reducing the principal and interest on car loans and the like. But there are other advantages that I wanted to mention as well.
First, from a practical standpoint Chapter 13 is just simpler and often more affordable to get filed. Our firm charges only $500 to get your case filed and that includes the filing fee for the court and the cost of a credit report to download your creditors. After the case is filed, the remainder of your attorney and trustee fees are simply deducted from your plan payment. No need to worry about coming up with a ton of money to get a case filed or make arrangements to pay money afterwards. Financing the filing of a Chapter 13 bankruptcy is simply cheaper and simpler than trying to file a Chapter 7.
Second, if you have lost your drivers license due to unpaid run-of-the-mill tickets, Chapter 13 bankruptcy will often able you to get it back very quickly after your case is filed. Many of our clients file Chapter 13 bankruptcy in Tacoma and walk into a Pierce County DMV the same week to get their license back. No more trying to dig yourself out of a big financial hole to get it back, just bring your filing information to the DMV window and you are legally back on the road.
Third, let’s say your house is underwater such that you owe more on your first mortgage than the house is worth. If that’s the case, we can eliminate the second mortgage, just slice it off your home.
Fourth, Chapter 13 is a much more flexible tool for dealing with debt. You can only file Chapter 7 every eight years. So what if you file Chapter 7 bankruptcy now and then two years from now through no fault of your own, you rack up more medical debt than you can handle, or you get laid off or divorced? The debt starts to add up.
The problem is that if that happens you won’t be able to afford a Chapter 13 Plan Payment and you won’t be eligible to file Chapter 7. No one ever thinks this will happen to them, but we see it happen all the time. Here’s the advantage of Chapter 13. When you are in a Chapter 13 and you rack up more debt and you can no longer afford to be in it, you can convert your case into a Chapter 7 and include all the debt that has arisen since the date of the Chapter 13 filing. In other words you file Chapter 13 Bankruptcy in 2015, rack up additional debt in 2018 and add it to the same bankruptcy once it is converted to Chapter 7.Now that’s safety.
Finally, Chapter 13 Bankruptcy in Washington is simply a smoother process than Chapter 7. The Chapter 13 Trustee doesn’t sell off your house if there is too much equity in it, the Chapter 7 Trustees can and will sell it off. The fact is that Chapter 13 Bankruptcy is a gentler smoother process than Chapter 7 Bankruptcy.
The Chapter 7 Trustees in Tacoma are extremely professional, but they are in a very real sense your adversaries. If they can sell off your home or your wedding ring within the boundaries of the bankruptcy code, they will. In contrast, the Chapter 13 Trustee knows that if your plan doesn’t work for you, you will just dismiss it two months after filing and that doesn’t work for anyone. The process requires the Trustee to take a more collaborative approach rather than an adversarial one.
Again, Chapter 7 is well worth considering but it is not always the be-all-end-all solution for debt relief. If you have any questions at all about the relative merits of Chapter 7 and Chapter 13 Bankruptcy in Washington, please contact our Tacoma office at xxx-xxx-xxxx to set up an appointment with one of our attorneys. We would be happy to help.
In this article, I am going to discuss some other advantages of filing Chapter 13 bankruptcy rather than Chapter 7
Because Chapter 7 bankruptcy normally provides a total discharge of unsecured debt, it is definitely fair to ask how is it possible that a Tacoma bankruptcy filer could possibly end up doing better in a Chapter 13 bankruptcy than in a Chapter 7 Bankruptcy.
The reality is that Chapter 13 Bankruptcy in Washington is often misunderstood as a repayment plan that requires repayment of all your debt over a period of time. The reality is that in many Tacoma chapter 13 plans, the only creditors that get paid back are the car and home lenders. This is where the Chapter 13 advantages come in.
If your house is in default or in foreclosure, Chapter 13 Bankruptcy in Washington gives you a way to catch up interest free over a long period of time. Chapter 7 doesn’t give you time to catch up or give you time to refinance. In fact if you are behind and you want to keep your house, an aggressive Tacoma Chapter 7 Trustee might still pressure you to do a short sale.
If your car meets certain criteria, Chapter 13 may allow you to actually reduce the amount that you have to repay to the amount the vehicle is worth. No more repaying $20,000 for a $10,000 car. If your interest rate is over 5% you can get it reduced to that amount.
Maybe the most important thing is you are no longer locked into the loan. In Chapter 7 bankruptcy, you will likely have to sign a reaffirmation agreement to keep the car that locks you in the loan until the day is paid off. In contrast, Chapter 13 bankruptcy allows you to keep the car until you decide that it no longer works for you. Much safer and much better.
Finally, if you are behind on your child support or your taxes, Chapter 13 gives you a way to catch up on those debts.
Chapter 13 Bankruptcy in Washington many offers many other advantages to the Tacoma bankruptcy filer that I will address in another article. This is not to say that there is anything wrong with Chapter 7 bankruptcy at all, just that we should not assume that it is always the best option.
Flexibility: you can dismiss the case at any time with notice or even convert it to a Chapter 7. You can modify a plan if income changes or you decide to give up a house or a car. You can refinance or sell a house during the plan.
A Chapter 13 Bankruptcy in Washington will save a house from foreclosure as long as you can make the payments.
You can strip a wholly unsecured second mortgage; or value a car if you’ve had it more than 910 days.
You can challenge the costs added to your mortgage by the lender.
Trustees want the plan to succeed and will work with you to get it confirmed.
Your attorney’s fees can be spread out rather than all due before filing.
You can avoid having to reaffirm a car in order to keep it.
You can cure a tax problem or a Domestic Support Obligation (child support or alimony) over 60 months.
You can stretch out your payments for a car or other secured debt and propose a reduction in the interest rate.
You won’t lose non-exempt property.
Depending upon your income a Chapter 7 case can be challenged by the US Trustee, but not a Chapter 13.
Schedule a Free Consultation with Your Tacoma Bankruptcy Attorney
When it comes time to file for bankruptcy, you need a compassionate and skilled attorney who will be able to guide you through the process as cleanly as possible. Northwest Debt Relief Law Firm, we can help you with filing for Chapter 7, Chapter 11, and Chapter 13 bankruptcy in Washington State. We will be there every step of the way to help navigate you through the often-complex and difficult bankruptcy process.
Give us a call at (253) 780-8008 to schedule a free consultation with one of our bankruptcy attorneys. If you have any other questions about bankruptcy, one of our attorneys will be more than happy to offer advice on your particular situation.