A recent blog post discussed how you don’t have to wait the usual period of time to file a second bankruptcy case if that new case does not discharge any of your debts. Usually you would have to wait 4 years between filing a Chapter 7 “straight bankruptcy” and a subsequent Chapter 13 “adjustment of debts” one. But you don’t have to wait out that 4 or any of the usual time periods if you don’t need a discharge of your debts in the new Chapter 13 case. There are reasons to file a new Chapter 13 case even if you don’t get a new discharge of debts.
Filing an Early Chapter 13 Case
Besides giving you a discharge of debts, the main other reason for filing bankruptcy is to stop your creditors from chasing you and your assets. Bankruptcy—and especially Chapter 13—buys you protection and buys you time. In situations where you have debts that under bankruptcy cannot be discharged, and often must urgently be paid, getting protection and buying time can be absolutely critical.
Situations Where This Happens
You may file a Chapter 7 case and not get the results you expected, thus needing the additional help of a Chapter 13 case relatively soon thereafter.
Usually when filing a Chapter 7 case, your attorney can tell you with quite high reliability whether any particular debt will be discharged in that case or not. However, there may be a debt you expected to discharge but for some reason it didn’t and so you continue to owe it.
Or maybe you filed your Chapter 7 case without using an experienced bankruptcy attorney, or without using any attorney at all, so that you unexpectedly continue to owe a significant debt or two. Or a debt that can’t be discharged turns out to be much larger than expected—such as an income tax after an audit, or liabilities from a drunk driving accident after the trial. Or, because of unexpected circumstances, you become liable on new debt that arose after your Chapter 7 case was filed, debt that can’t be discharged, such as child support or mortgage arrearages.
Finally, you may have fully expected to owe a debt or two but thought that you could settle with the creditors or arrange to make reasonable monthly payments—such as on income taxes—but now find out that either your financial circumstances have changed or the creditor is being unreasonable.
Reasons for Filing an Early Chapter 13 Case to Deal with Special Debts:
. . . Income Taxes
Taxes that cannot be discharged in a Chapter 7 case can be paid in a Chapter 13 plan under very favorable terms. Usually you don’t pay ongoing interest and penalties, and previously accrued penalties are discharged. Payments are based on what you can genuinely afford, and can usually be adjusted to future changes in your circumstances. The tax authorities can be made to wait their turn in line behind other even more important debts, such as your mortgage arrearage.
. . . Child and Spousal Support
If you fall behind on support obligations, your ex-spouse and the support enforcement agencies can be extremely aggressive, in ways that Chapter 7 cannot protect you against. Chapter 13 CAN stop them, and give you 3 to 5 years to catch up.
. . . Mortgage Arrearages
If you were already behind on your mortgage payments, or fell behind during your Chapter 7 case, Chapter 13 can give you as much as 5 years to cure that arrearage. That can be crucial because it does not take much time to pile up a huge arrearage, and you may well need all the time you can get. You may also be able to arrange to sell your home a couple years down the line when it’s better for your family or personal circumstances—or because of equity you’ll build in the meantime because of an improving housing market.
. . . Vehicle Arrearages or “Cramdown”
Chapter 7 almost always only gives you a couple months to bring your vehicle loan(s) current, or else risk repossession. Chapter 13 usually gives you many months, even years, to get current. And if you qualify for “cramdown”—if your loan is more than 2 and half years old and you owe more than the value of the vehicle—you may not even need to catch up, but instead may be able to lower both the monthly payments and the total amount you pay for the vehicle.
. . . Student Loans
You may not be able to qualify for an “undue hardship” discharge now, but because of a worsening medical condition or other circumstances you may be able to qualify later. Chapter 13 would buy you time until then, likely enabling you to avoid making student loan payments in the meantime. Although you are required during the course of a Chapter 13 case to pay all “priority” taxes and support arrearages, there is generally no obligation to make student loan payments.
If you are in New Jersey, the attorneys at the Law Office of Andrew B. Finberg can advise you about your best bankruptcy strategy. Bankruptcy is a complex area of law, and you benefit from working with a firm that focuses on it. Please call us at (856) 988-9055 or use this form to set up a free, no-obligation consultation with us. We look forward to serving you.