Chapter 13 Bankruptcy
If you are a homeowner and are interested in applying for a modification of your mortgage loan while you are in bankruptcy, see the “Home Loan Modifications” page on this website.
If, after careful review of your income, your assets, and other important financial information, we determine that (i) you would be ineligible for a Chapter 7 because your household income is too high or that (ii) it would not be in your best interest to file a Chapter 7 because you would run the risk of losing important assets, then we will discuss filing a Chapter 13 bankruptcy instead.
Put simply, in a Chapter 7, if you have non-exempt assets, the trustee will confiscate those assets, sell them, and use the proceeds to pay your creditors. In a Chapter 13, however, you keep your assets and pay back your creditors yourself in monthly payments over the course of a three or five-year-payment plan.
How much will you have to pay your creditors depends on two things: (i) how much you would have to pay in a theoretical Chapter 7, divided by sixty monthly payments, and (ii) how much you can afford to pay every month, meaning how much your monthly income exceeds your monthly expenses. Whichever figure is higher, is what you will have pay back to your creditors every month if you file a Chapter 13.
Example 1: A Jackson Heights man named Derek Jeter (no relation) owes $150,000 in personal credit card debt, mostly due to the fact that he personally guaranteed a few loans on a business venture that failed. He owns a home worth $800,000. If he files a Chapter 7 bankruptcy, after paying the bank and some priority debtors and after subtracting his homestead exemption, he will have $100,000 left over. In a theoretical Chapter 7, therefore, the trustee would be able to pay $100,000 to Mr. Jeter’s credit card companies. Divide that by 60 monthly payments = $1,667.
Meanwhile, Mr. Jeter makes a pretty nice living. After his bills are paid every month, he has $1,000 per month left over for emergencies.
If Mr. Jeter chooses to file a Chapter 13, he can expect to pay $1,667 per month, because that figure is the higher of (i) how much he would pay in a Chapter 7 divided by sixty and (ii) how much his monthly income exceeds his monthly expenses. The good news for Mr. Jeter is that he would end up paying only about 66% of his debt.
Example 2: An Astoria man named Mariano Rivera (no relation) also owes $150,000 in personal credit card debt, mostly due to the fact that he also personally guaranteed a few loans on a business venture. He doesn’t own a home, and in fact he has no non-exempt assets at all. In a theoretical Chapter 7, therefore, he would lose nothing to the trustee because, well, he has nothing to lose. His salary, however, is just high enough to put him over the allowed Chapter 7 limit, and he has $250 a month left over after his monthly expenses are deducted from his income.
If Mr. Rivera chooses to file a Chapter 13, he can expect to pay $250 per month, because that is the higher of (i) how much he would pay in a Chapter 7 divided by sixty and (ii) how much his monthly income exceeds his monthly expenses. Mr. Rivera would end up paying only about 10% of his debt.
The fee for a Full Service Chapter 13 is $5,535 assuming no unusual litigation is required. The fee includes the mandatory $338 court filing fee, the cost of a broker’s price opinion if you own a home, and the cost of two mandatory online courses. A $500 deposit is required with the remainder to be paid before your petition is filed. Arrangements can be made for $1,000 of the fee to be included in the monthly plan payments, so that only $4,535 is required before you file.