Chapter 13 with zero payment??

[DivorceRuinedMe]

I went to speak with an atty yesterday for a free consultation and she mentioned to me a Chapter 13 with zero payment. Maybe I misheard her but how can that be? Wouldn't everyone want to file this instead of a C7 as a way to keep their non-exempt assets? I'm confused.

[DeadManCrawling]

I have read about this on some legal blogs written by attorneys.

I believe the attorney at bankruptcyorlando.com addresses this.

My recollection (which may be incorrect) is that there IS a loophole that no one anticipated and a couple judges have refused to close.

If the numbers add up (you are above the median, showing extra income), and you are BEHIND on say, a house or car payment (secured debt) that will take you the full five years to get caught up on, you may end up with ZERO payment to unsecureds. The reason this works is that you MUST pay your secured crditors, you HAVE disposable income, but ALL of your disposable income will pay SECURED creditors.

End result-you pay ALL your secured debts, but ZERO to unsecureds.

The margin for these kinds of cases must be incredibly small. If you qualify, and if your attorney takes this avenue, be aware that, while attractive on the face of it, these few cases seem to have generated a LOT of attention.

The ruling I remember best is a judge who, after several adversary proceedings and much time, wrote something like this:

"The case meets all the criteria for a chapter 13, with disposable income that precludes filing a chapter 7. The disposable income, though, will be used to pay secured creditors, which leaves less than unsecured creditors would get in a chapter 7. Unsecureds will get zero payback, which violates the spirit of the new laws. However, I refuse to step in and "legislate" the law. If congress had a different intent, they certainly know how to fix it themselves."

Essentially, you COULD NOT file a chapter 7 because of the disposable income. A chapter 7 would be tossed out because of "bad faith"-disposable income. But you also cannot pay any UNSECUREDS in a 13 because all the disposable is required to pay secured creditors.

This is a perfect example of all the things that went haywire under the new law, but if you have the stomach for it, it sure looks good at first glance.

-dmc

[SinkingFast]

I've actually seen a Plan like that filed here.

0% to Unsecureds.

The people were in arrears on their mortgage, a car loan, and owed back taxes. Their Ch 13 Plan paid the Trustee, the attny, caught up the arrears and paid the back taxes. That's it. 0% to Unsecureds.

BUT,......... And this is a big BUT,........... This particular couple was below the Median.

If they had been willing to surrender their home and the car, they could have filed a Ch 7 and none of the Creditors would have gotten a thing.

As DMC said,............ It can and does happen, but it's rare.

Someone here recently was getting flack from their Trustee for only paying back 1% to Unsecureds. Seemingly, 0% payback is not something the Court looks kindly upon.

[DivorceRuinedMe]

We are below the median and can file a chapter 7 but we have some assets (my engagement ring) that we are worried about losing. We have very little disposable income (well below the $100) but we aren't behind on anything so I'm wondering why she would even bring this option up.

I guess it's best to have her run numbers showing it both ways to see which is the best way to go. If I have to lose the ring, I have to lose it and I'm not opposed to it whatsoever. But, if I can keep it and still pay back very little to the unsecureds, that could be an option I should consider, correct?

What are the drawbacks of the 13 if I'm only paying like a very minimal amount a month? (We just bought a new house and 2 newer cars so purchasing anything major is not in our 5 year forecast).

[SinkingFast]

Unless you have a larger, center set, certified diamond, and a very low jewelry/wedding ring Exemption, you might be able to get a value low enough to cover your ring.

Take the ring to jewelers and pawn shops. Act like you're looking to sell it. See what they will offer, cash on the spot. Most jewelry only brings scrap value.

A jeweler might remove the small stones and recycle them into another project. The metal is sent to a smelter. Pawn shops have to plan on sitting on a piece for who knows how long before it sells. Neither one is gonna offer you anywhere near an insurance replacement value.

[jane taylor]

Ours is a 0% to unsecured for 60 months. We are well above the median income for our state and were a month behind on mortage and vehicle. Seems as if our Trustee pushes for 0% to unsecureds.

jane

[DeadManCrawling]

Jane

I love it. A trustee with a heart, and some empathy for the debtor.

Hope I get one similar.



-dmc

[Granny]

I've actually seen a Plan like that filed here.

0% to Unsecureds.

The people were in arrears on their mortgage, a car loan, and owed back taxes. Their Ch 13 Plan paid the Trustee, the attny, caught up the arrears and paid the back taxes. That's it. 0% to Unsecureds.

BUT,......... And this is a big BUT,........... This particular couple was below the Median.

If they had been willing to surrender their home and the car, they could have filed a Ch 7 and none of the Creditors would have gotten a thing.

That would be me! I am in a 13 and paying ZERO to the unsecureds. All of them filed a claim, but they aren't getting a dime...well not exactly true. The plan says zero, but they all get to split what remains from the last (#60) payment after the final payment to the secureds and priority, somewhere in the neighborhood of 115.00.

And yes, I am barely under the median.

[DivorceRuinedMe]

That would be me! I am in a 13 and paying ZERO to the unsecureds. All of them filed a claim, but they aren't getting a dime...well not exactly true. The plan says zero, but they all get to split what remains from the last (#60) payment after the final payment to the secureds and priority, somewhere in the neighborhood of 115.00.

And yes, I am barely under the median.

Granny - did you have back taxes, mortgage payments or car payments? Is that the reasoning for your 13 with your zero payment. Your trustee approved this plan?

[sarakay5]

We are also paying back 0% to unsecured. We are below the median for our state and were current on everything but unsecured. After one filed for a judgement we freeked. I called an attorny hot-line and was told to consult with a bk lawyer. Unfortunately this all happened before we found this site.

Our lawyer said to stop paying the car payment and the little we were able to pay unsecured. After only one month we filed and were confirmed 5 wks after that.

We were told that if we went with a ch. 7 we could lose our house, even though we were current.

We are paying lawyer fees, car payment and trustee fees in our 60 month plan. At our 341 the trustee asked if we could make the payments. "Yes"
He told us that our case would be reviewed in 6 to 9 months to make sure everything was going right. It was and we are continuing on with our 60 month plan.

[Granny]

Granny - did you have back taxes, mortgage payments or car payments? Is that the reasoning for your 13 with your zero payment. Your trustee approved this plan?

Yes, I have back taxes, mortgage and a large truck (18 wheeler) payment that is included. Total payment is 1205.00 per month, lowered from 1250.00.

The trustee hasn't approved it yet, there is a hearing on 05/24 so I am expecting to see something on Pacer this week. It's a drawn out mess because I fired attorney #1 and attorney #2 didn't bother to notify the court that I had retained him until the trustee filed a motion to dismiss because the plan wasn't confirmed. Trustee office has now entered the new plan on NDC with the new payment amount, so it's just a matter of what and see now. I don't anticipate any/many problems here because our gross salary from the business was below the median for Texas.

Keep your fingers crossed for me.

[RBAllis]

I had been prequalified for a Chapter 7, I hired an attny today. She advised that I would be better off with a Chapter 13 with 3 years of payments. I am having to make payments to even be able to afford the legal fees.

[JollyGG]

I had been prequalified for a Chapter 7, I hired an attny today. She advised that I would be better off with a Chapter 13 with 3 years of payments. I am having to make payments to even be able to afford the legal fees.

Meet withn a few more lawyers before you hire that one. It is rare that a 13 is a better option unless you are behind on mortage or car payments and want to keep the house or car or, of course, are obove the median. Otherwise it is usually best to do a Chapter 7 and get your fresh start sooner. Lawyers make more money on a 13.
This lawyer may be right given you circumstances (I don't know all the details). However, you should meet with a few more attorneys for free initial consults to be sure you understand all your options.