Category: Chapter 13 Bankruptcy


Well, I am terrible about boasting my own achievements – except maybe to my husband – but that is what we joined up with fellow bankruptcy attorney Kaveh Mostafavi for… he seems to be quite adept at making me look simply brilliant.¬† So, since this does deal with an important legal issue in the context of Chapter 13 Bankruptcy – please check out his summary of my recent win for one of our clients here: The OTHER Mostafavi, Marco & Wimmer Bankruptcy Blog

 

Enjoy the read and visit http://www.mmwazlaw.com or http://www.drbankruptcyaz.com to learn more about Kaveh ūüôā

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As I previously discussed, the means test plays a major role in determining whether a person is eligible to file for relief under Chapter 7 Рthe liquidation bankruptcy.  However, if you are looking at filing a Chapter 13 reorganization bankruptcy for whatever reason, the means test still plays a role in your Chapter 13 bankruptcy.

The means test form used in a Chapter 13 is slightly different than the one used for a Chapter 7, but the same basic rules about determining your income and taking expenses still applies.  There are some more restrictions as to which expenses you can take, but that is what your attorney needs to worry about. 

Now, each jurisdiction uses the means test slightly differently, so if you are looking for file for bankruptcy outside of Arizona, this blog posting will likely not give you the information you need.  I help people get relief under Chapter 13 bankruptcy in Arizona only, and cannot speak to systems outside of this state.

Basically my goal when doing the means test for your Chapter 13 is to minimize your disposable income.  In Arizona, we determine your plan payment based on your Schedules I and J. Basically we take your current monthly income, minus your current monthly expenses and see what is left over.  However, there is a provision in the bankruptcy code that says, essentially, that the plan cannot be confirmed unless your unsecured creditors get at least as much as your means test shows you have left over at the end of the month.  Depending on your circumstances, that can be an unsurmountable issue.

In short, the means test can still play an important role, even in a Chapter 13 bankruptcy, and you should have a knowledgeable attorney assist you through the process.¬† Chapter 13 bankrutpcy filings are pretty complex, and while it may seem counter-intuitive to pay an attorney to help you ‘go bankrupt’ – we can help you avoid losses and other problems that you may not be aware of otherwise.

Chapter 13 bankruptcies are a true to form reorganization, and the debtor is in a repayment plan for 3 – 5 years while in a Chapter 13.¬† During that time, the debtor continues to pay his regular monthly mortgage payment for the first mortgage.¬† If the debtor was behind on the mortgage at the time the petition was filed, a portion of¬†his or her plan payment goes towards catching up the mortgage.¬† This is what makes it possible for you to ‘save your home’ with bankruptcy – you get the chance to catch up your mortgage over a 5 year period while in Chapter 13.¬† The trick is, your plan payment must be¬†high enough to actually pay off the full arrearage, and all other items that must get paid through the plan (car loans, tax debts etc.).

The ability to save your home is only one of the neat things you can accomplish with a Chapter 13. The second neatest thing, in my opinion, is the fact that the Chapter 13 process allows you to strip your second mortgage from the house.  If you remember from my previous post on 2nd mortgages and Chapter 7 Рa mortgage is really a two-part instrument.  The mortgage is both secured by your house (and the bank can proceed against the house by way of a sale) and it is a personal liability (meaning the bank can pursue you personally by way of a lawsuit). 

If your house is worth LESS than what you owe on the FIRST mortgage, the bankruptcy code allows you to strip the lien¬†from the house…. in effect, once all is said¬†and done, the bank can no longer ‘proceed against the house’ because they no longer has a security¬†interest in it.¬† The personal liability on the second mortgage becomes a regular unsecured debt – like a credit card, for example, and whatever does not get paid through the plan (and trust me, usually the unsecured creditors don’t end up getting much), is discharged at the end of the plan.

To illustrate, if you have a 200K first with a 10K arrearage on the date of filing, and a 150K second, but your house is only worth 150K, then the Chapter 13 allows you to bring your first mortgage current, and remove the second lien altogether.  The greatest challenge for most people is that you must complete the plan, in order for the order removing the second mortgage from your house to take effect. 

In the grand scheme of things, however, living on a budget and making regular monthly payments to the trustee based to repay some of your debts, is not a bad tradeoff for saving your home and ridding yourself of the second mortgage. For a free consultation about this issue with an Arizona attorney, call us today at 480-275-4894.   Want to find out more about us before making the call Рpay us a visit at www.marcowimmerlaw.com. We look forward to hearing from you!