North Carolina Bankruptcy Chapter 7, 13 (919)342-6509

You do not have your unsecured debt eliminated (but it can be reduced)!

Filing a Chapter 13 will be reported to the IRS. If you have not filed taxes or paid taxes over the last few years, any tax debt you have will be added to your Chapter 13 repayment plan. In a Chapter 7, if you filed taxes properly and promptly, any income tax over 3 years old that you owe will be discharged. You must file your taxes up to date in order to have a Chapter 13.

If you file a Chapter 13, you will lose your tax returns to the repayment plan but your plan will be credited. Also if your income goes up or down the payments may be adjusted.

If you have filed a Chapter 7 within the last six years, a Chapter 13 is your only option. But, Chapter 13 cases are often converted to a Chapter 7 after time, when the Debtor cannot make the payments to the repayment plan or if the Debtor later wishes.

A Chapter 13 will tend to hurt your credit more than a Chapter 7, if your credit rating was good when you filed. A Chapter 13 requires a long period of involvement with the Court. During this time, you may fall farther behind on unsecured accounts while secured accounts are being paid. Or, your secured accounts may fall behind while taxes and priority claims are being paid. Your credit rating may not improve, it may actually worsen. This may continue for 5 years, whereas a Chapter 7 would have given you a fresh start within about 90

Chapter 13 cases are limited to cases with about $1,250,000 (1.25 million for 2004) in debt but this amount increases or an increase is proposed each year.

Attorneys, Trustees, and Creditors may try to coerce you into filing a Chapter 13 because they are paid more if you file a Chapter 13. Your Attorney should advise you to file the bankruptcy that is best for you. If he wants to file a Chapter 13, he should be able to explain why either you are required to file it or why it is best for you to file it. The only acceptable answer is that it is in your best interests. Too often, the only reason a Chapter 13 was filed is because it made the Attorney more money. Attorneys Just Love to File Chapter 13 Bankruptcies. They will bill at $150 an hour for any additional work has to be done during the next five years that you are in a Chapter 13 plan. In a Chapter 13, you need to ask permission of the Court to buy or refinance a car or house during the next 5 years. When you ask for that permission, the Attorney will have to file a motion and will charge for that. If you need your plan payments lowered or to be given additional time, that will also cost you extra for his extra work.

Don't be talked into a Chapter 13 unless:
a) you would lose property otherwise
b) you have so much more income than expenses that you must file a 13
c) or there is some other valid reason such as the protection of a co-maker.
d) If an Attorney claims that you will lose property, double-check to make sure that you can't exempt your car or home and keep it in a Chapter 7.

A Chapter 13, which looks to be the cheapest bankruptcy at first, may cost you many thousands of dollars more if you don't first file a Chapter 7 to first get rid of your unsecured debts. Don't be told by any Attorney that you don't pay the Attorney fee in a Chapter 13 or that the Court pays the Attorney fees for you. The Attorney fees are included in your repayment that you pay to the Court if you don't pay them upfront.

A majority of all Chapter 13 bankruptcies fail simply because they are not properly planned or because people later become disabled or otherwise can't finish the repayment plans. Many are converted to Chapter 7 bankruptcies. With such high failure rates, even the judges and Attorneys didn't expect you to finish the payment plans when the plans required a 70% repayment. However now 10% (Middle District 25%) plans are often realistic and offer much a cheaper repayment option than debt counseling without the negative problems of debt counseling.

The Common Problems Associated With Chapter 13's

Having sufficient income to pay the Chapter 13 payments.

Proposing a plan that must pay an amount at least equal to a Chapter 7.

Its high failure from later becoming ill or disabled later and not being able to complete the repayment.

A Chapter 13 requires a long period of involvement with the Court.

Higher costs including attorney fees and loss of income tax refunds.

Having the court involved in your life. If you need to buy a car or home or financing one within the next 5 years you will need your attorney to apply for permission.

A Chapter 13 will tend to hurt your credit more than a Chapter 7 if your credit rating was good when you filed. Your credit rating may not improve; it may actually worsen. This may continue for 5 years, whereas a Chapter 7 would have given you a fresh start within about 90 days. During this time, you may fall farther behind on unsecured accounts while secured accounts are being paid. Or your secured accounts may fall behind while taxes and priority claims are being paid.

The time it takes (3-5 years to complete) and how it will be on your credit record for up to 5 years while you finish the bankruptcy repayment plan when a Chapter 7 is over in 4 months.

Non-Dischargeable Debt

Any valid debt not provided for in the Chapter 13 plan.

Alimony and child support.

Educational loans, except in cases of prolonged and severe hardship - a very difficult standard to meet.

Any debt for death or personal injury caused by the unlawful operation of a motor vehicle while intoxicated.

Restitution or criminal fine included in a sentence upon conviction of a crime.

Secured debts not paid off prior to last plan payment

When Should I Not File a 13?

In most cases, you want to file a Chapter 7 because it immediately eliminates your debts and you get the bankruptcy over with in 3-4 months with less cost. Because a Chapter 13 bankruptcy lasts up to 5 years and requires repayment, it will be more of a burden to you than a Chapter 7. During this time, if you want to buy a car or a home or apply for additional debt you have to ask permission from the Court. You will lose your tax refunds to pay the Chapter 13 plan, but it is credited to your repayment. The majority of all Chapter 13 cases fail and are converted to Chapter 7 cases. In a few situations, though, a Chapter 13 is a good solution. For instance, Chapter 13s:

protect co-signors better,

stop foreclosures as long as the arrearage is paid within 2 years

can be used to repay and discharge many debts that otherwise would be non dischargeable such as:
a) child support arrearages
b) non dischargeable taxes
c) student loans.

are the only option if you filed a Chapter 7 less than 6 years ago

There are times to use a Chapter 13 as a tool to stop a foreclosure or to protect a co-debtor. But it is important that if you are going to file a Chapter 13, you should at least think about first filing a Chapter 7 to get rid of unsecured debts that may make it impossible to afford a Chapter 13 debt repayment plan. Since North Carolina changed to allowing 10% (Middle District 25%) Chapter 13 plans more Chapter 13s are being filed and there is less need to resort to first filing a Chapter 7.

You will have to ask the Court for permission to borrow or purchase any major items while you are in a Chapter 13. This will cost extra attorney fees. You will be required to turn over your tax refunds to pay Creditors and if you fall more than two payments behind, your case is dismissed.

A Chapter 7 may do less damage to your credit than a Chapter 13, and it normally repairs your credit more quickly. However, Chapter 7 only temporarily stops a foreclosure. A person that finishes a Chapter 7 bankruptcy will spend about 2-3 years to reestablish his credit before he can buy a home from a prime lender. If the same person files a Chapter 13 he may now be able to buy or refinance a home within 1 year after he files if he pays his Chapter 13 on time.

There are times that filing a Chapter 13 is right for you and times that it isn't. Never file a Chapter 13 just to make your Attorney the extra money. Your credit will generally be much better, much sooner, with less effort and less cost, if you file a Chapter 7. If an Attorney says that it is your moral duty, or that your credit will be better if you file a Chapter 13 than if you file a Chapter 7, neither of these things is true. Chances are he is thinking of his higher fees, not your best interests. Legislation that may be passed that may require that anyone who makes much more than minimum wage to file a Chapter 13. There are many other changes that may happen to the bankruptcy law. That is why there is a rush to file.

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