No One Can Sue You Under a Chapter 13
Video Transcribed: Edward Kelley, a bankruptcy attorney in Oklahoma, answering your bankruptcy questions. And we are in the second of a series on Chapter 13s. The last one we talked about, what is that? Basically, as opposed to a Chapter 7 liquidation, Chapter 13 is a personal reorganization. So you’re not liquidating, you’re reorganizing your finances. And we talked about how if you owed 60,000 total, then you could have up to $1,000 a month Chapter 13 payment because of 60 months in five years.
But you wouldn’t probably pay that much because it’s based on what you can pay. So IRS standards are used for a family of five. If it says that… If you submit all your expenses and it says, “Okay. Well, you have $200 leftover per month, then that’s what you pay.” And if it was $100 a month in this last example, then you’re a 6,000 of that 60,000. 54,000 were wiped away, discharged just like in a 7 at the end of the five years.
And in the meantime, you are protected by bankruptcy and no creditor can reach out to you. No one can garnish you. No one can sue you. You’re under the blanket of the Chapter 13 court. Okay. So today’s topic as promised, why would I choose a 13 over a 7? Well, number one, you make too much money to do a 7. We talked about it in our series on 7s, there’s a cutoff. And if you make more than that cutoff, then the idea is, well, you have disposable income.
You have some money leftover beyond what you need, and that should be paid into your creditors up to the amount that you owe total. Obviously, you’re not going to pay more than that. And again, that’s based on IRS standards. So it’s a bit of a haggle between your attorney, like myself, and the court, but it’s based on real numbers and it’s based on current IRS standards.
And oftentimes, we may haggle about something being a legitimate expense or an allowable expense. And of course, we’re trying to get your payment as low as we can to make it easier on you and the court, just trying to make sure that you pay all of your disposable income. But once you lock it in, that’s it.
So reason number one is to do a 13 over a 7, you make too much money. You can’t do a 7. Number two, you are behind on a home or car loan. So probably as many people as I get in 13s because they have to.
I get people who would normally do a 7, but they’re losing their house and they want to keep it. So particularly, as COVID forbearances end and suddenly people are owing to the whole forbearance term at once, suddenly they owe $25,000 and didn’t realize it. People are coming to me because they’re in foreclosure. And about the only thing that will stop a foreclosure in its tracks is a Chapter 13 bankruptcy.
Unlike a 7, in Chapter 13 in Oklahoma, you can force the bank. You don’t have to sit through their endless mortgage refinance or forgiveness applications. You just submit a plan. Okay. Let’s say, as far as I owe, my normal payment for my house is $500 a month and I am $6,000 behind. Again, just an easy number because Chapter 13 can last up to five years.
So I will have to pay that regular mortgage payment, you can’t get further behind, through the trustee now instead of directly to the lender, the mortgage lender. And I submit this plan saying I will pay an additional 100. So over 60 months, that’s going to equal to an additional $6,000, which is what you’re behind.
So in that case, you’re going to pay 600 a month. That’s your Chapter 13 plan to save the house. And barring any violations of the code, that’s going to get approved. The only thing you have to show is that you have enough money to make that payment.
Same thing with a car. Depending on how long ago you bought it, you can even do what’s called cram-down a vehicle, which means reduce what you owe on that vehicle to its value. So often, you’re upside down, you owe $15,000 on a $5,000 car.
If you bought it a certain amount of time ago, you can only have to pay that 5,000. I’ll get more into that in a later video, we’ll do a specific one about cars. But to summarize, why would I do a 13 instead of a 7? Number one, I make too much money to do a 7. Number two, I’m losing my home or a piece of collateral, like a vehicle or an RV or something I want to keep that I’m behind, and I want to force the bank to let me catch up.