Chapter 13 Bankruptcy – Reorganization

Filing a Chapter 13 case means you have to make a monthly payment to the Chapter 13 Trustee assigned to administer the bankruptcy estate. How much that payment is depends upon your circumstances. There are many reasons why filing a Chapter 13 bankruptcy case may be in your best financial interest or required. Not all bankruptcy lawyers have the experience we have regarding Chapter 13 bankruptcy cases. Mr. Wood was formerly a staff attorney for David Burchard, Chapter 13 Trustee for the San Francisco and Santa Rosa Divisions of the Bankruptcy Court for the Northern District of California. Ms. Lin has filed and confirmed well over a hundred Chapter 13 bankruptcy cases.

The most common reasons to file Chapter 13 bankruptcy in San Francisco, San Jose and Oakland are to reorganize vehicle loans (See Example 2 below), discharge and pay back taxes without penalties or interest, catch up on missed mortgage payments (See Example 3 below), get rid of underwater second mortgages or equity lines of credit (See Example 4 below), keep assets while discharging all or a portion of unsecured debts and discharging credit card debts just like in a Chapter 7 case. Some of you will be pushed into a Chapter 13 case because you can afford to pay back some of your debts in a Chapter 13 plan. You may only be obligated to pay back 10% of your debts and receive a 90% discharge. It all depends upon your income, expenses, debts and assets. During your free consultation we will discuss your options to help you determine what is best for you. Filing a Chapter 13 case is not the end of the world. We have filed hundreds of bankruptcy cases for residents of San Francisco, Oakland and San Jose.

Now that home prices are rising again there are less Chapter 13 cases filed to strip off underwater second mortgages or equity lines of credit. Chapter 13 remains a powerful tool to reorganize debts though. If you have an investment property that is underwater or upside down Chapter 13 can help. In a Chapter 13 plan of reorganization the amount owed on a loan for an investment property does not have to paid back, the fair market value of the investment property is what has to be paid back. The catch is the fair market value amount has to be paid back during the 60 month maximum term of the Chapter 13 plan. For example:

Example 1: Cramming Down What is Paid Bank on an Investment Property

1. Purchased Investment Property for $480,000 in 2008; $80,000 down payment.
2. Mortgage balance is $375,000 as of 2014.
3. The Fair Market Value is $200,000 as of 2014.
4. In a Chapter 13 Plan, only the fair market value of $200,000 has to be paid back over 60 months of the Chapter 13 plan (Interest May Apply).
5. The monthly payment would be $3,333.33 for 60 months and you will own the investment property outright with no mortgage in five years.

Example 2: Reducing the Amount Owed on a Vehicle Loan

1. Purchased car and obtained a loan for $35,000 with 8% interest in 2011.
2. Fair market value of car as of date of filing, sometime in 2014 is only $11,000 and you still owe $16,000 on the loan.
3. In a Chapter 13 Plan, only the fair market value of the car is paid back and the interest can be reduced.
4. In the Chapter 13 Plan you will pay the fair market value of $11,000 and the interest rate can be lowered to approximately 4.75% instead of 8%.

Example 3: Catching Up on Missed Mortgage Payments

1. Your monthly mortgage payment is $1,800 a month.
2. You missed 10 payments for various reasons and owe $18,000.
3. Your chapter 13 plan will allow you to pay back the missed payments over 36 months or 60 months depending upon your circumstances.
4. The 36 month payment would be approximately $500 a month and the 60 month payment would be approximately $300 a month.
5. Once the Chapter 13 bankruptcy case is filed you must start to make the normal mortgage payment of $1,800 a month as well.

Example 4: Strip Off Underwater Second Mortgage or Equity Line of Credit

1. Purchased primary residence or an investment property for $700,000 in 2008; with a $50,000 down payment.
2. 1st mortgage $550,000 and 2nd mortgage $100,000.
3. The Fair Market Value is now only $525,000 at the time the bankruptcy case is filed.
4. Given that the fair market value of the house is less than what is owed on the first mortgage, then the second mortgage or equity line of credit is completely unsecured, there is no value.
5. In a Chapter 13 case underwater mortgages can be removed forever upon completion of the Chapter 13 plan of reorganization.

Give us a call toll free at 1-877-963-9543 to schedule a free consultation and find out if Chapter 13 bankruptcy is right for you.