Chapter 13

Chapter 13 Bankruptcy in Hawaii

Our Hawaii Bankruptcy Lawyer Explains Chapter 13 Bankruptcy

Hawaii Bankruptcy Attorney Blake GoodmanIndividual debtors who have a regular income (including those engaged in business) and who qualify via a financial means test can file a Chapter 13 bankruptcy to restructure or reorganize debt. A qualified Hawaii bankruptcy attorney is essential for navigating this complex financial process, and Chapter 13 offers a great deal of benefits for individuals.

A debtor “engaged in business” is someone who is self-employed and incurs trade credit in the production of income from that employment. A debtor engaged in business may continue to operate his or her business in a Chapter 13 case. The debtor proposes a plan that outlines how his or her debts will be repaid. The debtor must devote all of his or her disposable income to payments under the plan for three to five years.

Qualifying for Chapter 13

To qualify for Chapter 13, a debtor must have:

  • Regular income
  • Unsecured debts of less than $383,175
  • Secured debts of less than $1,149,525 (these dollar amounts are usually increased every three years according to a set formula).

A trustee is appointed in all Chapter 13 cases, but the trustee’s role is much more limited than in a Chapter 7 case. The small business debtor is allowed to continue his or her business. In Chapter 13 cases, a debtor receives a discharge when the debtor has completed all payments under the plan.

Generally, a discharge in bankruptcy means that a debtor’s obligations are erased or wiped out. When a discharge is granted, it protects the debtor from personal liability on the discharged debt. A discharge is only available to certain debtors and for certain debts, however.

I’ve never seen a debtor successfully represent themselves under Chapter 13’s complex mandates without the assistance of a competent bankruptcy lawyer. I’ve seen plenty make a mess of things without one. You are strongly urged to contact an experienced Hawaii bankruptcy attorney who is versed in Chapter 13 law in order to guide you through the Court’s maze.

Reduced Payments to a Budget

A Chapter 13 bankruptcy consolidates all your bills: cars, house arrears, credit cards, tax debts, student loans into one monthly payment. The payment goes to a trustee of the Court who pays your creditors, kind of like a consolidation loan. Debtors often find in Chapter 13 that the monthly payment is much less than paying all debts individually. It’s based on what you can afford to pay back in three to five years, not so much on what you owe.

Chapter 13 Bankruptcy Stops Foreclosure and Repossession

A Chapter 13 Plan helps you not lose any property to the bankruptcy system. We’ll design a plan to stop foreclosure and stop car repossession. And while the plan reorganizes your mortgage arrearage, in most cases it will also reduce your overall debt load.

Stops Creditor Calls

A Chapter 13 bankruptcy stops creditors from calling. A strong restraining order goes into effect when you file a Chapter 13 Plan. The automatic stay prevents all creditor contact: calls, letters, lawsuits, garnishment, foreclosure and harassment. The creditors have to communicate with your attorney in order to reach you. This “breathing-room,” called the automatic stay, is the best thing about bankruptcy.

Less Embarrassment

A “light” version of bankruptcy, a Chapter 13 Plan helps you pay your debts and avoid the stigma and problems accompanying a straight, or Chapter 7 bankruptcy.

Chapter 13 Bankruptcy Protects Co-Signers

If someone has co-signed a debt with you, a Chapter 13 Plan usually keeps creditors from being able to make collection attempts against your co-signer.

Chapter 13 Bankruptcy Can Help Eliminate Old Tax Debt

Chapter 13 is often the most powerful tool available for taxpayers who’ve gotten stuck in the bottomless pit of old tax debt. It provides a lending hand towards getting back on track with State and Federal taxes, and very often more complete a solution than Chapter 7 bankruptcy.

Chapter 13 Bankruptcy Can Help Manage Student Loans

If you are struggling to pay student loans, Chapter 13 can help. Although the vast majority of borrowers cannot discharge student loans, the debts can be consolidated as part of your Chapter 13 payment plan. After you receive your bankruptcy discharge, your income may be freed up so you can have an easier time paying any remaining student loans.

Chapter 13 Bankruptcy Rejects Invalid Claims

The Court may hold hearings regarding your debts, rejecting those that are unfair or unfounded.

Minimal Appearances in Court

In either Chapter 13 bankruptcy or Chapter 7 bankruptcy only one mandatory appearance is necessary, and it’s not in front of a judge or jury. Your section 341 meeting is in front of your trustee in a hearing room.  It usually lasts 5 minutes. In a large majority of cases, it’s the only appearance you’ll have to make.

Will I lose my home by filing Chapter 13 bankruptcy?

A common concern is the thought of losing the family home. Although that is possible in some cases, Chapter 13 offers homeowners the chance to save their residences.

In a Chapter 13 proceeding, even if the debtor is behind on mortgage payments, the wage-earner plan can pay back any missed mortgage payments. The home will not be lost if the debtor continues to make on-going, future payments when due.

If the debtor is a renter rather than a homeowner, and if the debtor is current in his or her rent payments, it is unlikely that the lessor would even become aware of the bankruptcy proceeding. If the debtor is behind, however, he or she could be evicted.

What happens if my salary increases after filing a Chapter 13 wage-earner plan?

In all my years of experience representing Chapter 13 debtors in three different states, I’ve never had a trustee or creditor motion the court to increase my client’s plan payments after the plan was confirmed by the court – however, it is a possibility. Whether changes in salary will change the payment plan depends on a complete consideration of all of the circumstances.

If the debtor’s income changes after the case has been filed but before the court has confirmed the plan, making it binding on the creditors (which can take as much as three months), the trustee will closely scrutinize the debtor’s disposable income to make sure that the payments and the income are consistent and will incorporate any necessary changes into the plan. If the debtor’s income changes during the duration of the repayment plan, changes in income may not necessitate any changes in payments. The trustee may, however, ask that payments be adjusted if the debtor’s income increases significantly. The trustee does not closely monitor the debtor’s income, and it may actually be outside the scope of a trustee’s duties to do so.

The trustee will consider not only the salary increase, but also whether there has been a corresponding increase in disposable income on which payments are based. Disposable income is the amount of the debtor’s salary that remains after deducting all reasonable living expenses.

If both the debtor’s salary and expenses increase, there may be no increase in disposable income and therefore no change in the payment plan. If there is a significant increase in disposable income, the trustee may ask for an increase in payments. In cases in which the plan extends over more than thirty-six months, the increased payments may actually reduce the length of the plan’s term, so that the debtor has paid off the debts and receives a discharge sooner.

How will filing under Chapter 13 impact my credit report?

A consumer credit report may include Chapter 13 bankruptcy information for seven years from the time the case is filed. This will not make it impossible to obtain credit – rather, it means that you will have to overcome the negative remark in order to obtain a favorable credit standing.

In actuality, most of my clients obtain vehicle and house financing even while the Chapter 13 case is still pending. Some clients are even able to obtain a credit card or unsecured bank loan before the seven year period expires. This is just the reality of aggressive lending policies that creditors practice today.

It is true that the cost of obtaining credit with less than a squeaky clean credit report profile results in the payment of higher interest rates on your borrowing. But you must ask yourself- what is the cost of not declaring bankruptcy, both economically and emotionally?

Most other non-bankruptcy credit information is also included on a consumer credit report for seven years, and longer if the information is relevant for a longer time period. For example, if the civil judgment against the debtor is valid for ten years, it can be reported for credit rating purposes for the same time period.

Because both the Fair Credit Reporting Act, which controls what a credit agency may include in a consumer’s credit report, and the Bankruptcy Code are federal law, the same rules apply in all states. There may be some differences, however, in relation to the more-than-seven-year information, since most of the relevant time periods or statutes of limitations are found in the individual states’ laws.

What happens after bankruptcy?

Getting Off the Credit Merry-Go-Round!

We hope you will take full advantage of your bankruptcy and, if you have not already, start living on a Cash Basis.

  • Do not buy it unless you have the cash in your pocket.
  • Save at least a little money for emergencies.
  • Use a checking account debit card for reservations and internet purchases. U.S. Bank even offers debit cards that earn frequent flyer miles.
  • Throw each new credit card offer away with a chuckle.
  • Contribute as much as you can to take full advantage of any 401k or other matching contribution plan at work. This is “free money.”
  • Avoid whole life insurance, buy term life instead and save or invest the difference.

In doing so, you can:

  • Never have another creditor call at home, work etc. again.
  • Never have another credit card bill come in the mail.
  • Rebuild your credit by making rent/mortgage and car payments on time, every time.

If you would like to borrow in the future for a major purchase we suggest that you:

  • Make every rent/mortgage/car payment etc. on time, every time.
  • Maintain steady employment and do not take on any new debt.
  • Keep your income to debt ratio as favorable as possible.
  • Visit with your lender well before you intend to borrow and get their advice on what they are looking for in order to improve your chances of borrowing.
  • Shop, shop, shop around. A simple method for all major purchases is to check with several banks/dealers etc. and narrow your choices down to two. Then be honest with each about what the other is offering and see if they will “sweeten the deal” to earn your business.

When it comes time to buy a home, we suggest:

  • Realize that realtors and lenders make more money if you spend more money.
  • Avoid the pressure to buy as much home as you can qualify for.
  • Buy a modest home and finance it for 10, 15 or 20 years at the most and you will save an enormous amount in interest. You will also build equity much quicker so you can avoid being “upside down” if you do need to sell.

People like you have been in your situation before, and our office helps military personnel as well as civilians needing assistance. They sought out the counsel of an experienced Honolulu bankruptcy attorney and only had good things to say about the process. They got help and so can you.