Interviewer: What sort of person would prefer Chapter 13 bankruptcy over Chapter 7? What financial standing should they have at the time?
Court Koehler: You need to have a regular income to do a Chapter 13. That’s one of the requirements. That’s one thing that will separate Chapter 7 from Chapter 13. With Chapter 7, you don’t necessarily have to have any income when you’re doing it. But with the Chapter 13 you do because you have to be able to make your payments and your plan.
The Benefit of a Chapter 13 Is Retaining Ownerships of Assets
The other issue is ownership of assets. The advantage that Chapter 13 offers, which is not having to liquidate your assets to pay off debt, makes a Chapter 13 better for people who have a house or cars or other assets that they’re trying to hold on to.
A Chapter 7 Bankruptcy Is Better Suited for Individuals Who Do Not Own a Home and Vehicles
It doesn’t offer any advantage to somebody who doesn’t have those assets, who’s just trying to get liquidated and move on with their life. It can be burdensome for those people because those people don’t necessarily want to go through a payment plan for a period of years to get a financial fresh start.
A Chapter 13 is for people who have a regular income and they have some assets that they want to hold on to. They’ll typically be assets that are underwater or have little equity, whether it’s a car or a house or both. Usually the principal of those loans is higher than the actual value of the asset underlying it. It’s not required for you to file Chapter 13 but that’s just usually the situation that people that come to me are in.
When Do You Begin Making Payments under the Chapter 13 Bankruptcy?
Interviewer: When someone is making a payment plan in the Chapter 13, how often will that person need to make that payment?
Court Koehler: The first payment will be due 30 days after we file your petition. That’ll be due to the trustee, and you just pay him or her directly. They send out usually some information and they give you an address and an envelope and you just return your payment. It’s a monthly payment, so you pay it once a month, every month.
It’s very important that you don’t miss payment under the Chapter 13 plan. If you miss a payment, you can get your case dismissed, and that is not good because then you have to start over from scratch. To help you, we work really hard to get a payment plan worked out for you that you can afford.