What Chapter 13 Bankruptcy Can Do, and What the Debtor Must Do.

A common errors that debtors make in chapter 13 cases is not fully understanding the obligations that they assume in chapter 13. Chapter 13 Bankruptcy is not some sort of a magical cure to all the financial difficulties a debtor may have. There are some serious financial requirements under a chapter 13 bankruptcy. It is the duty of the bankruptcy attorney to fully explain what the debtor is getting into before the bankruptcy is filed.

So often I see debtors in a chapter 13 plan that can not resolve their debts. In certain strategic cases it might buy them more time to get current on their debt. The key is to understand what the objective of the chapter 13 bankruptcy is, advise if that objective can be meet, and fully explain the obligations of the debtor.

In a nut shell, here is what chapter 13 can do, and what the debtor must do.

Chapter 13 can wipe out a second mortgage: But the following requirements and debtor obligations must be meet:

This is usually done if you have a house that is upside down on the 1st mortgage and the 2nd mortgage is entirely unsecured.

• The value of the house must be less than what the debtor owes on the 1st mortgage on the house.
• The debtor must start making payments on the first mortgage immediately after filing the bankruptcy.
• The debtor must make all payments under the chapter 13 plan which are usually for 5 years.
• The Chapter 13 plan has to be sufficient to pay off what the debtor was behind on the first mortgage, cover the remainder of attorney fees, and cover the trustee fees, at the minimum.

Once we add up all the payments of the 1) mortgage, 2) property tax, 3) chapter 13 payments, 4) all the general living expenses. The debtor has to realistically evaluate if they can make all these payments. If not, the case will be dismissed and the objective of saving the house and wiping out the 2nd mortgage will not be meet. In the mean time all payments and scarifies the debtor has made during the process are wasted.

Chapter 13 can give you an opportunity to catch up on mortgage payments you are behind: But the following requirements and debtor obligations must be meet:

This is done when a debtor lost a job and fallen behind on mortgage payment, but now has  a job and can make payments but needs time to get current on the arrears.

• The debtor must start making payments on the mortgages, 1st and 2nd, immediately after filing the bankruptcy.
• The debtor must make all payments under the chapter 13 plan which are usually for 5 years.
• The Chapter 13 plan has to be sufficient to pay off what the debtor was behind on the mortgages (both the first and second), cover the remainder of attorney fees, and cover the trustee fees, at the minimum.

Once we add up all the payments of the 1) mortgage, 2) property tax, 3) chapter 13 payments, 4) all the general living expenses. The debtor has to realistically evaluate if they can make all these payments. If not, the case will be dismissed and the objective of saving the house and getting current will not be meet.

Best advise to debtors is to talk with a Los Angeles bankruptcy attorney in person and get a full explanation of all options and possible outcomes. Know what is expected from you the debtor in the process BEFORE beginning a chapter 13 case. Call our office for a free in person initial consultation.