Interviewer: At what point does someone decide that Chapter 13 is a suitable option or the best option?
Court Koehler: I’d say, first of all, that you really shouldn’t decide without talking to an attorney. Really, a bankruptcy attorney is going to be the best person to go to for you to determine whether or not you need to file under Chapter 7 or under Chapter 13. There’s a big difference between the two. Unless you have the training and experience, you’re not going to know really what the ins and outs of each are and what the benefits are of a Chapter 13 over a Chapter 7.
First of all, before you even determine whether you need to file bankruptcy, you should really consult an attorney. Sometimes people consult with me and I tell them that it’s really the best for them to file bankruptcy for one reason or another. Sometimes their problems can be helped with other remedies, like by dealing directly with creditors and working out settlements and things like that. Other times, they’re good candidates for bankruptcy and it can really help them out. At that time, I determine whether Chapter 7 or Chapter 13 is best for them.
That being said, most of the time with Chapter 13 the most common thing is when people are in danger of foreclosure and losing their house or something like that. That’s usually the most common Chapter 13 client.
Chapter 13 Timeframe
Interviewer: When someone’s granted Chapter 13, how long could it last for that person? Could it be extended in any way?
Court Koehler: Yeah. It’s pretty set as far as the length of the plan. There’s some flexibility, depending on your income level. The way it works is you’re either going to be in a three-year plan or a five-year plan. That’s based on your income level. What they do is they take your income and they compare it to the median income for the state that you live in. In Utah, depending on the number of people in your household, the median income can be anywhere from $48,000 to $50,000, $60,000, $70,000.
If you’re below that level for your household size, then you’ll be on a three-year minimum plan. What that means is that you have to be in the Chapter 13 plan for at least three years. If you want to extend that plan to five years, you can lower the payments and you can do it over five years, but you only have to do three years.
Then the other type is a five-year plan. That’s if you’re over the median income for your state. If you’re over the median income, then you have to do the plan for five years regardless. You’ll be in it definitely for five years.