Paying Off Your Chapter 13 Plan Early

Nothing is better than being debt free.

Stick with your Chapter 13 Plan

From time to time I am asked the following question by a potential Chapter 13 client:  If somehow I could come up with the money, could I pay my Chapter 13 plan off early?  If you  have ever seen a Chapter 13 plan, it is easy to understand how this question would arise.  The plan document provides for monthly payments in a certain amount, and then it shows what the total of the payments over the life of the plan will be.  It shows how all the money is  to be applied – so much to unsecured creditors, so much to attorney fees, so much for the trustee’s fees, and certain amounts to taxes or other priority debts.  Usually it will even state in terms of a percentage exactly what fraction of the unsecured debts are being paid.

It seems obvious that once the plan is approved, if the Debtor could come up somehow with the total due under the plan, he or she should be able to  wrap it up early and get their discharge early.

Well, guess what.  That’s not how it works.  Or at least it usually is not how it works.  Simply stated the rule is this:  the only kind of Chapter 13 Plan that can be paid off early is a 100% plan.  Chapter 13 plans fall into two categories:  100% plans and  less than 100% plans.  In a 100% plan, all the unsecured debt is to be paid under the plan.  In a less than 100% plan, only a portion of the unsecured debt is to be paid.  The vast majority of Chapter 13 plans are of the less than 100% variety.

So in most plans, where less than all of the unsecured debt is scheduled to be paid, the trustee will welcome extra payments from folks who have come into extra money that was not expected, such as an inheritance or big bonus at work.  In fact the trustee might REQUIRE that such funds be paid into the plan.  But after that extra payment is made, unless the plan is of the 100% variety,  the regular plan payment is due again the next month – and that continues until the end of the plan or until 100% of the unsecured debts are paid, whichever comes first.

The result of all this is that in most Chapter 13 cases, it is self defeating to take draconian measures for the purpose of raising extra money to pay into the plan.  Unless you can raise enough to pay off 100% of the unsecured creditors who have filed their claims with the bankruptcy court, there’s no reason to make an extra effort.  In fact you might be more or less punished for any such extra efforts.

If you are in Chapter 13 and receive extra money from somewhere, consult your attorney about it right away.  If the  amount is significant enough you probably have an obligation to report it to the bankruptcy trustee.  Sometimes your lawyer can negotiate a deal which allows you to keep some of the funds and pay in only part of it.

This post is for general information purposes only and does not create an attorney-client relationship.  It is not legal advice.  Seek the advice of your own attorney concerning the details of your case.

David Kelly Law Office is a debt relief agency helping people to file for relief under the federal bankruptcy code.

Minnesota Bill Collectors Going Out of Business?

Collection Agencies Going Out of Business?

Collection Agencies Closing Offices? Economy Worse then Expected?

Is the economy getting so bad that the bill collectors are going out of business?  From where I sit it appears that at least two of the old tried and true bill collectors have moved out of Minnesota.  When a bankruptcy case is filed, it is very important to be sure that all the creditors are being notified.  The notices are sent out to the creditors by US Mail by a central noticing center which is operated by the court.  When an address is bad or when a notice comes back in the mail in connection with one of my cases, I get notified of that right away by email from the clerk of court’s office. In cases where a collection agency has taken over an account, I always try to list both the original creditor and the agency in the bankruptcy papers.  If the debt has also been referred to a lawyer, I list the law firm on the list of creditors too.

For as long as I can remember, Allied Interstate has been one of the big collection agencies in these parts.  In recent times their office was within a few blocks of mine.  They were located in that big, white office building on the northwest corner of the intersection of I-394 and Highway 169 known as the Interchange Tower.  There was more than one occasion when I was about ready to go over there in person and yell at them.  To me they were an institution, kind of like the federal government.  It never occurred to me that they would not always just be there.  In bad economic times, I would have assumed that their business would have just gotten all the better.

You might imagine how shocked I was to receive a notice, and then another notice, telling me that the address I was using for Allied Interstate was bad.  Well, they had apparently been assigned a number of debts of a couple of my clients – so I had to find a new address for them.  At first I assumed that they had just moved to a new location in their old neighborhood.  As I almost always do when I have such a problem, I went to Google looking for a new address.  There were no results for Minnesota except what I already had.  I went to Bing.  Same result.  Next I tried to call all the phone numbers I could find for Minnesota locations of Allied Interstate.  More shock – they were disconnected.  Finally I stared trying locations outside of Minnesota.  They had been a nation-wide operation.  The first few numbers I tried were not being answered.  Finally someone answered at an Allied Interstate office in Ohio.  He said to use the following address:

Allied Interstate, PO Box 4000, Warrenton, VA 60197-6123

So I added that address to the list of creditors at the court web site for both of my cases, and it seems so far to have been a good address.  Meanwhile a notice that I had sent to an Illinois office of Allied Interstate came back in the mail as well.  One has the impression that this outfit is not doing so well.

Not long after this business with Allied Interstate, I received notice that an address I had been using for one of the bill collecting law firms was bad.  They were it seemed to me a lot like Allied Interstate in that they had been around forever.  To me they seemed to be one of the top law firms that over the years had driven many of my clients to my door.  Their office had always been in St. Paul, but they sued people from all over the Twin Cities.  Again I went to Google and several other sources.  What I found or seem to have found is that they closed their St. Paul office and are now doing business from their home office in another state.

From day to day I see little indicators – including the above – that the economy is worse than anybody in the media outlets wants to admit.

This is for general information purposes only, is not legal advice, and does not create an attorney-client relationship.  I am a debt relief agency, helping people file for relief under the federal bankruptcy code.

How Does Bankruptcy Work

Filing for bankruptcy is often seen as an irreversible act that is only to be reserved for dire and desperate circumstances. For many, the very thought of filing brings to mind images of long shameful court battles and loss of wealth, reputation, and good credit standing.

In truth this undesirable image is largely exaggerated and undeserved. What many people don’t realize is that filing for bankruptcy protection is often the first step in climbing out of the dark hole of debt and into the light of financial recovery.

Oh No! Not the “B” Word

Much of the mystery and taboo associated with the subject comes from a general lack of understanding about how bankruptcy works and what it means for the person who is filing. Here we hope to dispel some of the myths and misinformation that surrounds the subject by offering you a brief look into how bankruptcy works.

In the U.S., bankruptcy is constitutionally required to be placed under federal jurisdiction. Thus congress has enacted a number of statutes governing bankruptcy law and proceedings. Likewise, bankruptcy cases must be filed in United States Bankruptcy Court. Although cases are filed under federal jurisdiction, state laws greatly affect certain aspects of the process so it is important to understand that bankruptcy laws vary significantly from state to state.

Six Shades of Debt Relief

Bankruptcy is a blanket term that refers to a variety of legal arrangements that are available to a debtor seeking to liquidate, restructure or resolve his debt. Under Title 11 of U.S. Bankruptcy Code there are six distinct chapters or types of bankruptcy available to debtors depending on who they are and their financial situation.

All attorney David Kelly handles, however, are Chapter 7s and Chapter 13s, so discussion here will be limited to those two kinds of bankruptcy.  We we will focus on the those two types of bankruptcy available to most individuals who have fallen on hard times and are seeking relief from creditors. We will take a look at each process and how each type of bankruptcy works.

How Does Chapter 7 Bankruptcy Work?

Chapter 7: Basic Liquidation

As the name suggests, Chapter 7 is sometimes decribed as the basic liquidation is the sale of the debtor’s non-exempt property and the distribution of the proceeds to creditors. One might think that Chapter 7 is generally the “harshest” form of bankruptcy as it can involve the mandatory sale of ones assets and generally does not involve structured reorganization of debt or a payment plan.

In most states bankruptcy proceedings are handled by a U.S. Trustee operating under the authority of the department of justice. In most Chapter 7 proceedings the process starts with the debtor filing a petition with the bankruptcy court that serves the area where the debtor lives, does business or houses their principal assets.

Along with the petition, the debtor must also submit a collection of documents that provide a detailed account of the debtor’s financial situation.  This includes but is not limited to income, assets, living expenses and debt obligations.

Exempt Property:

Please know that most of the Chapter 7 clients at Kelly Law Office don’t have any assets liquidated at all.  Most if not all of their assets can be claimed as exempt, so that they may keep them.  For assets which are not exempt, the Trustee may allow the Debtor to buy the asset back by paying it’s value rather than surrendering the item itself.

Among the documents filed is a schedule of the debtor’s exempt property. This allows the debtor to retain all property that falls under federal and state protection from the liquidation process. It is important for a person filing for bankruptcy to consult with an attorney to determine which of his assets are exempt from the process.

Stop Collection:

Filing for Chapter 7 stops collection actions against the debtor. As soon as the debtor files for bankruptcy the assigned clerk gives notice to creditors and collection agents listed in the filing to stop all lawsuits and collection efforts against him.

Conclusion:

While the process can involve all eligible assets being repossessed and sold in an effort to satisfy all or a portion of the debtor’s outstanding debts, it is unusual for our clients to lose any assets at all. If any assets are lost, it is usually relatively minimal.  Once the case is completed, most remaining debt is discharged and, with certain exceptions such as student loans, the Debtor no longer owes anything to the creditors listed in the filing.

Side Effects:

Filing for Chapter 7 Bankruptcy has several effects on the debtor in addition to the obvious outcome of debt relief. The filing is recorded on the debtor’s credit history and also affects their ability to file bankruptcy again using the same or other chapter filings.

Chapter 13: Individual Debt Adjustment (Personal)

Chapter 13 Bankruptcy is somewhat similar to Chapter 11 in that the debtor is working to formally or legally restructure and adjust their debt burden in a way that allows them to move forward without the constant hardship of collection activity.

Stop Collection:

Filing for Chapter 13 stops most collection actions against the debtor. As with Chapter 7 filings, the stay or stop in collection activity may only be temporary if one of the creditors is able to get an order lifting the stay with regard to the particular debt owing to that creditor. As soon as the debtor files for bankruptcy the assigned clerk gives notice to creditors and collection agents listed in the filing to stop all lawsuits and collection efforts against him.

Save Your Home

One notable advantage of Chapter 13 filings is that the Debtor may be able to use the Chapter 13 payment plan as a tool to get mortgage payments caught up.  This can obviously help avoid foreclosure of his home. With a Chapter 7 filing, foreclosure may be delayed, but the Debtor is on his or her own to get the payments brought up to date.  While bringing payments up to date in Chapter 13, the Debtor must also start and continue making the regular payments on the mortgage which come due after the case is filed.  Many succeed at this, but often it is very difficult..

Conclusion

A Chapter 13 Bankruptcy may be preferable to a Chapter 7 for the debtor who wishes to get caught up on a mortgage which is behind.  Income taxes which are behind can also be brought up to date in a similar manner under Chapter 13.  The payment plan is not based on the amount of the debt but upon what the Debtors can afford to pay.  Debtors are required to devote their entire disposable income – what’s left over after reasonable living expenses – to their Chapter 13 Plan payments.  If the Trustee is satisfied that a good faith effort is being made, the creditors have little choice but to accept the proposed plan.  Little if any negotiation is involved in most cases.

Summary:  How Bankruptcy Works

Bankruptcy is a legal procedure or device that follows standard guidelines. Here’s how it works:

  1. Debtor or Creditor brings to the attention of the court a debt or group of debts which the debtor has demonstrated he is unable to otherwise pay or resolve.  In Chapters 7 and 13 all debts must be listed.
  2. Debtor (or sometimes the creditor) initiates bankruptcy filing which establishes the chapter under which said bankruptcy is to be carried out.
  3. Debtor is required to furnish a significant body of evidence detailing his financial standing and inability to pay the debts in question.
  4. Creditors are given the opportunity to review the evidence and have the opportunity to file certain objections if they believe that the Debtors do not qualify for the relief they are requesting.
  5. If all goes well, the Debtors will receive a Discharge after a certain period of time, which is essentially a court order which says all or a substantial part of the debts are gone.

This is a basic guide to how the most common forms of bankruptcy work. For more information we recommend you contact an attorney to determine your best course of action given your particular set of circumstances. Bankruptcy law varies greatly from state to state and circumstance to circumstance. We want to make sure you have the tools and knowledge to address your unique set of circumstances as best as possible. It is strongly suggested that you call attorney David Kelly for a no-cost screening over the phone (952-544-6367).

Should I File for Bankruptcy?

Should I file for Bankruptcy?This is a difficult question. As you can imagine, I get asked this a lot. Usually “Should I File For Bankruptcy?” is asked as one of the first questions when a new prospective client calls or emails me. Most of the time, the question is too complicated for dealing with by email, so early on in the exchange of emails I am very likely to suggest that the person just call me on the phone.

I usually break the conversation down into two issues: First, can these people file for bankruptcy – are they eligible; and second, we answer the question “should I file for bankruptcy”.

For details of the technicalities of eligibility, you should look at my pages devoted specially to Chapter 13 and Chapter 7. Almost everyone qualifies for one or the other, although I do run into a few who don’t qualify for either.

Assuming that a person qualifies, the question of should I file for bankruptcy is probably harder to figure out. In my opinion nobody should file any kind of a bankruptcy if they have any other options available to them. How does one know if there are any other options? After all there are adds on the TV and the radio for debt management programs and debt consolidation programs.

In my opinion you are out of other choices if your dischargeable unsecured debt – the debt that usually can be gotten rid of in a bankruptcy – equals or exceeds one half of your annual gross income.

So first I will try to figure out how much your annual income is right now, and then I will want to start adding up the debts. When I add up the unsecured debt, I do not include the student loans, because they will still be there after the bankruptcy is finished. I also would not include child support arrearages and most taxes for the same reason. As a practical matter, however, lots of student loan debt or other nondischargeable debt may lower ratio of how much other debt as compared to annual gross income would justify filing in my opinion. The higher the student loan debt, the lower the dischargeable unsecured debt to income ratio I would want to see before taking the case.

What Does The Law Say about Filing for Bankruptcy?

The law doesn’t help answer the question of Should I File for Bankruptcy. It provides for no minimum amount of debt which is required to be there before one can file a bankruptcy.

Every case is different, and there has never been a foolproof mathematical formula that has seemed to work for me. But here’s what I am really trying to figure out:  as a practical matter can these people live long enough and work hard enough to pay off this debt by some time within their reasonable life expectancy?

If the answer is no, then I recommend that either a Chapter 7 or Chapter 13 be filed. What I find is that most of the people who call me have passed the point of no return some time ago.

If you need to talk to a professional about whether or not you should file for bankruptcy, give me a call today at: 952-544-6356

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