Podcast #8: Chapter 13 I’ve Already Filed Bankruptcy What Are My Options

Disclaimer

While the information given in this podcast is instructional, it is not intended to be taken as legal advice for your particular legal or financial situation. The recommendations that we give to one person may not be appropriate to your particular situation. The information contained in these podcasts is also not intended to replace the advice that you would receive from an actual consultation with a competent legal professional practicing in the area of consumer bankruptcy law.

Welcome

Welcome to MorseBankruptcy.com, the podcasts, I’m Todd Morse the owner of Morse Law. We handle various topics on these podcast. They come from different sources. This particular podcast is coming from visitors to our website who fill out contact form and they leave questions for us. These are usually the first questions they’re asking as they’re looking into bankruptcy to see if it’s possible solution to their situation. This particular visitor wrote.

Viewer Question

Unfortunately I have filed bankruptcy before, I was on track to improving things I’ve since been able to get finance from multiple vehicles, credit cards, etc but I’ve gotten myself into some job difficulties and with my current job status I’m not making enough money to keep up on my only mode of transportation, utilities etc. I would rather not do this but in lieu of my recent predicament, if I don’t do something I’ll never recover not with my current wages.

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Well, this writer brings up kind of an interesting point really, the idea of multiple filings and while we do enjoy most of our clients, we don’t get a lot of repeat business out of them. Which is, by and large, a good thing. We do generally get to meet some of their friends and family later on when everybody takes their turn in life when things don’t go the way you planned for, but we don’t generally file the same people multiple times. The one exception may be is a situation of medical debt because if you have chronic medical condition unfortunately, in this country, the unspoken health insurance for everyone is bankruptcy if your medical bills just get too high. It’s been done that way for generations. Not a lot of people talk about it but that’s pretty much the way it’s been handled.

Now, this person in particular doesn’t mention anything about medical debt. It looks like what they did was they had some problems with some credit maybe it was credit cards or what not in the past. At any rate, they previously filed bankruptcy and now on their road to rebuilding they did what lot of people do is unfortunately in this country if you are going to rebuild your credit there is no way to do it without taking out new credit. So, they did to some extent what they suppose to do. They took out credit cards and they financed some vehicles.

Now, standard operating procedure for approving your credit score is to take out some credit cards. We usually advise that people use those cards strictly to funnel their current regular monthly expenses like use one credit card for gasoline, one credit card for groceries. Things you are just going to spend a set amount of money on and money that you have to spend anyway every month and that way you don’t let the balances get out hand on you – its money that you are already budgeting for. And then with a vehicle, of course, you need to look at your salary and make sure the monthly payment is something that’s reasonable and reasonably easy for you to make each month.

Now, what seems to have happened here and maybe I’m reading between the lines a little bit, but it looks to me like the person filed the bankruptcy and they were doing pretty much the right idea. They’d gone out and gotten credit card so they have revolving unsecured debts reporting positively and then they had financed a vehicle or two – it says multiple vehicles here and I have no idea what the payments were but that was to have a secure installment debts reporting positively. Your score will go faster if you have different types of debts reporting positively. But at some point something happened maybe they got a demotion or maybe they just lost that job. Right now they are working in a job where they are making significantly less then what they were making at the time they financed those vehicles and when those credit cards were being taken. So kind of tells me credit cards probably were not being used to funnel regular monthly living expense but rather they were being used the way credit cards want themselves to be used. To finance the purchases that you can’t afford in the time which always bad idea. At any rate, this was all manageable under the old job and old salary now it’s not manageable.

So you’ve got two problems facing this person. One they are not going to able to keep up with the credit card debts so eventually that’s going to start racking up the balances with increased interest rate, penalties, fees whatever those people can think of in a given month to charge you and then they have the other glooming possibility that perhaps, one of these vehicles is going to fall into repossession. When that happens they take the car and sell it at auction, pay off much of the note as they can which usually isn’t much because they don’t go out of their way to generate money from these sales and then they are going to leave this person with a balance better known as the deficiency. What’s leftover on the note after the sale plus the cost of sale and whatever else they tack on. So, this needs to be addressed.

Now, because there was a prior filing we first have to figure out what are we legally entitled to file again. If the prior filing was a chapter 7 and that’s about 80% of the filings in Colorado for consumers, let’s assume it was. If they have previously filed a chapter 7 and that chapter 7 was filed within the last 8 years they won’t be allowed to re-file this next case as a chapter 7. You have to have minimum of 8 years in between chapter 7 filings.

Well, that leaves you with chapter 13. Now chapter 13 is a reorganizational bankruptcy where essentially you run your budget and you end up making a payment that’s affordable for your household, then you pay off some percentage of your unsecured debts with the rest receiving a discharge at the end of the chapter 13 plan. A plan being the series of monthly payments to the 13 trustee that can last anywhere from 3 to 5 years just depending on a few different factors. Another thing you have to look at with this 13 is to see if any what we call priority creditors or types of creditors that are required to be paid in full under the current bankruptcy code.

Now, since this person doesn’t mention any of those we can assume that he is talking about credit card debt, medical debt, things like that none of those are priorities. He’s just going to have to make as much of a payment towards that as his bankruptcy’s budget shows he can afford to make each month.

But one thing is kind of interesting here is the individual talking about a complete change in lifestyle, he doesn’t say any numbers what he was making before this job change or what making for a current salary but if you took you know a good 10, 15, or 20 percent cut in pay with a new position or demotion then clearly you are not set up to keep up with the same expenses that you had when you were making more money and there is a few ways you can deal with this.

Now, with the unsecured debt, it’s kind of like we talked before, if they were previously in a 7 now. They are going to go over to 13, and they are just going to pay on that what they can afford to pay each month through the 13 and the balance whatever is not paid off is going to be discharged at the end. That doesn’t do a whole lot of good for these vehicles. So when the person financed the vehicles they were able to make payment now it sounds like they are not able to make it.

There are different things you can do in a chapter 13 to restructure a vehicle loan. One possibility would be to just surrender this car out right and purchase another car with lower month payment. So just surrender the one that is giving in difficulty in the moment and then purchase a more reasonable vehicle with a more reasonable, workable monthly payment and allow the bankruptcy to wipe out any type of deficiency that would come from this original vehicle.

Another option would be able to take what so left up current vehicle’s financing so let’s say that we are talking about the vehicle that had 30 more payments due on its financing and our chapter 13 plan going to be 60 months in lengths. Instead of having this vehicle paid off in the next 30 months we might stretch out this loan, this balance over the next 60 months and thereby reduce the amount being contributed to this one vehicle lender in half. So say you’ve got a $400 car payment, whether it was an expensive car or just a really terribly interest rate doesn’t matter, if it was $400 before maybe now we’ve got it down so they are only contributing $200 a month. Just by making the loan take longer, sort of modifying that loan through a chapter 13 bankruptcy. There are couple other types of creative solutions you can look into with these secured debts. Chapter 13 is really quite remarkable in terms of what you can do with modifying or changing the terms of secured debts.

Now, 13 isn’t always going to be a catch all solution. If there is a prior filing there are other set of rules. For example, if you have had a chapter 7 filing and then you are filing chapter 13, if that chapter 13 filing is talking place within four years of the chapter 7 filing then the chapter 13 filing, the present one, isn’t going to be allowed to receive a discharge of debts. It does not mean you still can’t use it to restructure the vehicle loan or to have the stay order in place which would prevent certain types of collect or any collection activities might help protect you against wage garnishments, law suits, or creditor harassment, things like that. And you could certainly still use the 13 to restructure these secured debts. At least in the ways we’ve talked about so far.

But if it was file within four years of chapter 7 filing certainly wouldn’t be able to receive a discharge. However, that’s a fairly rare scenario that doesn’t come up too often but a very unfortunate situation which sounds like a person was well on the way to doing what most people do after filing bankruptcy. Reestablishing their credit and getting back on their feet, just bad turn of luck and now they find themselves in a position where they are making whole lot less money but if they were to probably re-file whether 8 the years have passed or not if the 8 have passed we could just do the 7 and then this time they can reestablish credit in a much safer more conservative manner. Or if 8 years haven’t passed we can restructure what they are going through right now with the chapter 13 make everything survivable and then again rebuild the process of establishing credits but do it in a much safer, more conservative manner than the way it was done first time. That way there is no opportunity and no chance of a third filing. An unfortunate situation but still a very good question.

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