Thursday, January 15, 2015

Top 10 Chapter 13 Bankruptcy Pitfalls





YOU MUST READ AND UNDERSTAND THE BANKRUPTCY PETITION, AND NOTIFY ME OF ANY ERRORS OR OMISSIONS, BEFORE YOU SIGN IT, AND IT IS FILED.  FAILURE TO DO SO IS AN UNCONSIONABLE BREACH OF YOUR DUTIES AS A DEBTOR.
Please read the Chapter 7 Section of my web site (www.mulvaneylawoffices.com) for the top 10 bankruptcy pitfalls, debt-to-income ratio, and exemption information.  Below is information specific to Chapter 13.

1. Failure to make or catch up plan payments.  The first full payment is due 30 days after filing.  A wage order issued by the Trustee to your employer is required.  Your employer sends the money to the Trustee and the Trustee sends the money to your creditors once your plan is confirmed.  That means, if you are paid twice per month, the wage order needs to start on your next pay check after filing in order for you to be current.  If it doesn't start then direct payment is required.  You must catch up missed payments or your plan will be dismissed.

   *****                       Please create a free account at the                               *****
                       National Data Center in order to track your payments.
                                                  www.ndc.org

Below is a link and the information on how to make payments to the Chapter 13 Trustee.
 http://www.seattlech13.com/info/make_pay.php                                                       

WARNING:  You will get behind in your car payment in Chapter 13 if you put the Attorney's Fees in the plan, so you will have to catch up ASAP if your case is dismissed.

2. Failure to budget.  Chapter 13 is designed to take 100% of your disposable income for 5 years.  It is very difficult to live with just what you need for necessities for that long.  Therefore, budgeting is vital to success in Chapter 13.  There are many good sources of useful information and tools for budgeting.  Below are just two to get started:

Top 100 Most Wished For Books on Personal Finance from Amazon
http://www.amazon.com/gp/most-wished-for/books/2719/ref=zg_bs_tab_t_mw

A Free Web Site That Lets You Download and Analyze Your Banking Information
https://www.mint.com/

3. Using credit.  Do not use credit, even if a creditor sends you a pre-approved credit card.  A condition of being in Chapter 13 is that you not use credit.  You must seek and obtain a Court Order to use credit.  Obtaining the Order requires filing a Motion and setting the Motion for  Hearing.

4. Not staying current on taxes.  Your Chapter 13 plan only includes debts that existed on the day you filed.  It does not include debts which accrue after filing.  Therefore, if you under withhold and owe taxes while you are in Chapter 13, the IRS has cause to move to dismiss your plan.  Dismissal would require refiling in order to include the tax debt as pre-petition debt and starts the clock over for the 60-month plan.  So, if your plan is dismissed in month 40 and you refile, you will not receive your discharge until 100 months from your original filing date.

5. Not sending Trustee tax refund amount above $1,500.  Any tax refund amount above $1,500 is non-exempt in Chapter 13 and must be voluntarily sent to the Trustee.  Failure to do so, could result in dismissal of your case.



6. Not sending Trustee copy of tax return.
  Refusal to send the Trustee tax returns for each and every year you are in the plan is cause for the Trustee to move to dismiss your case.  Please send the tax returns to me first and I will submit them for you.  When you receive a letter from the Trustee directing you to do something, send me the letter and whatever was requested by fax or email attachment and I will submit it to the Trustee for you.  Please do not communicate with the Trustee's office directly even if they contact you.  Contact me first and I will communicate with the Trustee's office for you.  It makes representing you difficult if I don't know what you are doing with respect to the Trustee.  Thank you.

7. Failure to report increased income.  If you are paying anything less than 100% to creditors, if your income goes up during Chapter 13 then likely so will your disposable income and required plan payment.  If you don't timely report a raise or increased income, then you could fall behind on your required Plan payments which could result in dismissal of your case.

8. Buying a car.  It is possible to buy a car while you are in Chapter 13, but strict requirements must be met which are:
(1) A monthly payment of $400 or less
(2) A purchase price (before trade in) of $15,000 or less
(3) Interest of 20% or less

Below is the form that needs to be completed and submitted to me, so that I can submit it to the Trustee for you.
Chapter 13 CarPurchaseRequest with Limits & Fax.pdf
Below is a link to a loan calculator you can use to enter the interest rate, balance and repayment term in order to calculate the monthly payment.
http://www.bankrate.com/calculators/mortgages/loan-calculator.aspx

9. Failure to pay child support.
  You are required to remain current on child support in Chapter 13.  The Trustee sends letters to the child support recipient to ensure that you remain current.  Failure to remain current could result in dismissal of your case and refiling with the regular child support payment, plus the arrears in the new plan and payment of the 5% Trustee's fee on the whole amount distributed.

10.   Post-petition HOA dues. If you own a condominium or house with HOA dues and the property is being surrendered in your bankruptcy, your personal liability to pay the dues that accrue after filing continues until the title to the property is out of your name.  Banks sometimes take 5 years or more to foreclose.  Banks and HOA's often will not accept a Deed in Lieu of Foreclosure (they are not required to do so).  This means that even if you have been in Chapter 13 for 4 years when the bank finally forecloses, the HOA will sue you for the which accrued after filing.  This could result in a garnishment of 25% of your net pay, which would trigger a Motion to Dismiss your case and refile for another 5 year plan, putting you in Chapter 13 for 9 years.  This is an unfair result that has yet to be remedied by the Washington State Legislature.  If you are affected by this issue, I urge you to contact your representatives in the State Legislature and ask them to pass a law correcting this injustice.

 14205 SE 36th St Ste 100
Bellevue, WA 98006-1553
www.mulvaneylawoffices.com
Phone: 425-649-1190
Fax: 425-223-3197

chris@mulvaneylawoffices.com