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Chicago Chapter 13 Law Firm

Chapter 13

If you make more than the median income and don’t otherwise pass the Means Test, chapter 13 might be for you. Chapter 13 is also for you if you fear losing property to a trustee in a chapter 7 case. Our clients use chapter 13 to keep property which might be taken away by secured creditors like a mortgage lender or automobile finance company. Our experienced chapter 13 attorneys in Chicago can help you decide if this is the right option for you.

Chapter 13 bankruptcy can help you in many ways:

  • You can catch up on your car payments
  • You can catch up on your mortgage
  • You can get rid of a second mortgage if your first mortgage is for more than your house is worth – this is called “lien stripping.”
  • You can eliminate most, if not all, of your debts by writing one check a month for no more than 5 years and as little as three years
  • You can get breathing room from oppressive debts, such as tax debts, student loans and even child support and alimony
  • Our Chicago chapter 13 law firm can stop mortgage foreclosure in chapter 13 bankruptcy
  • We can object to erroneous credit card claims and fraudulent mortgage claims in chapter 13 bankruptcy cases
  • You can eliminate divorce related claims which are not “domestic support obligations” in chapter 13 even though you can’t do this in chapter 7 (link here to Bankruptcy and Divorce)
  • In many cases, our board certified consumer bankruptcy attorney can help you obtain a mortgage modification agreement in chapter 13 even if you have previously been denied a mortgage modification under the Obama plan, the HAMP program, or even the bank’s private loan modification program.

Clear your debt now!

  • If you don’t think you qualify for a Chapter 7 bankruptcy, see our chapter 13 bankruptcy attorneys in Chicago to find out what options are available to you. We work hard to help you achieve the financial freedom you need to get out of debt and improve your credit for a more solid financial future

Recovering after chapter 13 bankruptcy

When you complete your plan with your Wisconsin chapter 13 attorney, you can rebuild your credit. You can get some credit right away. Your credit score will improve. We’ll help you check your credit report to make sure that everything is reported correctly. If credit reports are wrong, we will sue the creditors for money and to make them correct your credit report.
Your Lakelaw chapter 13 bankruptcy lawyers are with you for the long run. (link to page 1 endorsement saying how we were there for our clients 5 years later).

Frequently Asked Questions About Chapter 13

What is a chapter 13 plan?
A chapter 13 plan is a legal document stating your monthly income and expense, your disposable income, the monthly payment you can make to the Chapter 13 trustee and how the payments will be applied. In general, chapter 13 payments are used to pay your attorney’s fees, the chapter 13 trustee’s fees, secured creditors’ arrearages, priority creditors, like taxes, and a percentage of your debt to unsecured creditors. The plan is presented to the court on a form plan designed by the court. We have the right to customize the model plan in ways to best meet your needs. If you fulfill the terms of the plan, your debts are eliminated or discharged.

Who is the chapter 13 trustee?
The chapter 13 trustee is a person appointed by the United States Trustee, a division of the United States Department of Justice, to oversee your chapter 13 case. The chapter 13 trustee reviews your plan, determines if it meets legal requirements, determines if the math of your plan works, and recommends to the bankruptcy court whether to accept or “confirm” your plan. The chapter 13 trustee also monitors payments under the plan and will move to dismiss your case if you fail to make necessary payments.

What is the role of the Bankruptcy Court in Chapter 13 cases?
The Bankruptcy Court decides whether to confirm your plan. It will rule on any objections to the plan. It will rule on any objections to claims. It will consider any lawsuits or “adversary proceedings” or “contested matters” which arise in your case. The Bankruptcy Court also determines if your attorney can recover fees. The Bankruptcy Court will carefully consider the opinion and recommendation of the chapter 13 trustee because the judge will value the experience and expertise of the trustee. So be sure that you satisfy the trustee’s requirements. The Judge’s decision is final and he or she can overrule the recommendation of the chapter 13 trustee.

What are the fees for a chapter 13 case?
In Illinois and Wisconsin, there is a fixed fee that courts allow for chapter 13 cases without need for hourly accounting. Sometimes, in complicated cases, your bankruptcy attorney may enter into a contract with you for fees on an hourly basis. In such cases, the fees must be approved by the Bankruptcy Court. Your Lakelaw attorney will organize a fee payment plan that will work for you.

How much must I pay every month?
This varies from case to case. It depends on your income and permitted expenses and allowances under the “means test.” Sometimes, if things in the future are much different than your economic situation was in the past, we look at your current budget to figure out your payment. Frequently, this is a negotiation with the Chapter 13 trustee. In all cases, your monthly payment must be approved by the Bankruptcy Court.

How does the means test work?
First, we figure out your “current monthly income.” This means the average income you have made over the past six months. We use either your pay stubs or your income and expense statements from your business to figure this out. Then, we use a complicated form provided by the courts to figure out how much “disposable income” you have. We deduct from your “current monthly income” items that you must pay, such as taxes, mandatory deductions from your salary, payments on secured loans like your mortgage and car payments, life and health insurance and some others. We then deduct “allowances” provided by the Bankruptcy Code based on Internal Revenue Service standards for things like transportation, food and automobile expenses. There are other items considered too. If you have enough disposable income left over to pay something to your creditors, you are expected to pay that amount under your chapter 13 plan.

What if I lose my job?
If you lost your job, it doesn’t matter what you used to make. You won’t be bound by the “means test” and you would be eligible for chapter 7.

What if I am making less money than I used to?
If things have changed for the worse and are not likely to get better immediately, we will figure out if you have any disposable income based on a current budget. If you have disposable income based on a current budget, you can file a chapter 13 case. Otherwise, you can file a chapter 7 case.

What if I am getting divorced and have to pay child support or alimony?
Child support and alimony are deductions from income. You may be eligible for chapter 7 if as a result of child support and alimony payments, you don’t have any disposable income.

What happens to my tax refunds in Chapter 13?
Most trustees will ask that you contribute some or all of your income tax refund toward the payment of your plan obligations. This does not mean you’ll pay more. But it does mean that you’ll complete the payment of your plan sooner.

What happens if I inherit money or win a lawsuit or lottery while I’m in Chapter 13?
You have to inform the court and the chapter 13 trustee of any windfall or inheritance. You may have to pay some or all of this toward your plan. The chapter 13 trustee or a creditor might try to require your plan to be modified in order for you to pay more. It is very important that you keep us informed every step of the way. Very bad things can happen to you if you fail to report something as important as this to the court.

Will you keep in touch with me during the Chapter 13 case?
Yes, we’ll check on you regularly to see how you are doing. We want to make sure that everything goes smoothly. If something changes for the worse in your financial life, we can often help you resolve the issue with the court and the chapter 13 trustee before it turns into a problem. Keep in touch with us too!

Case Study:

We represented Mr. and Mrs. C. in chapter 13. During the course of their Chapter 13 case, we helped them negotiate a modification of their first mortgage. Unfortunately, Mr. C. lost his job and was unable to continue in the chapter 13 case. We were then able to convert the case to a case under chapter 7 and as a result discharged all of their unsecured debt.

Case Study:

We represented Ms. L. in a chapter 7 case. She discharged all of her debts. She still had a second mortgage on her house. The first mortgage was for more than the house was worth. Unfortunately, she needed to file a chapter 13 case within a year or two of her first case. We did so and tried to eliminate the second mortgage lien in that case. The Bank objected. We ended up appealing to the district court. Even though the district court denied the motion to eliminate the second mortgage lien, after all appeals were done, 4 years had passed and then Ms. L was eligible to file a new chapter 13 to eliminate that second mortgage lien. We didn’t charge Ms. L. one cent extra for the work we did on the litigation and the appeal. We’ve stuck with her for over 4 years now.

Case Study:

We represented Mr. C. in a chapter 13 case. We reduced a $360,000 debt on a 6 flat apartment building to $165,000. We reduced the interest rate on the debt substantially as well. And we eliminated the second mortgage on his residence. As a result of this, Mr. C’s plan will result in him owning the 6-flat free and clear at the end of 5 years.

Saving your house or car

Almost all of our clients ask, “Can I keep my house in bankruptcy?” or “Will my car be repossessed in bankruptcy?” Sometimes clients ask “Can I get my car back if it was repossessed before bankruptcy?”

Keeping your house and car in chapter 7 bankruptcy cases

If your payments on your house or car are current you can keep your house or car after bankruptcy even if you wipe out all of your other debts. If you want to keep your car after bankruptcy in Illinois or Wisconsin, you need to sign a “reaffirmation agreement” with the lender (link here to blog entry on reaffirmations). This is an agreement between you and the lender saying that even though you got rid of, or discharged, all of your debts in your bankruptcy case, you will continue to be personally responsible for your debt on the car. If you don’t sign the reaffirmation agreement on time, you can lose your car even if you are current on your payments and want to keep it.

To keep your car, be sure your payments are current and that you have insurance on the car, with a loss-payable clause in favor of the automobile finance company. And sign a statement of intention to keep the car when you file your bankruptcy petition. Finally, sign the reaffirmation agreement and return it to your Lakelaw attorney as soon as you get it so that we can send it to the creditor within the time permitted by law. Your Lakelaw bankruptcy lawyer in Illinois or your Wisconsin bankruptcy attorney in our Kenosha or Milwaukee office will assist you with this task. We have to consult with you and assure that court that you can afford the payments after your bankruptcy. If your payments are a hardship, we might advise you not to reaffirm the debt and to seek other alternatives.

If you have a house, and you’re current with your mortgage, your Lakelaw Chicago bankruptcy attorney will advise you about your options. You could reaffirm a mortgage debt but frequently, we will advise you to continue paying on the mortgage as normal even though you will be discharged from personal liability in your chapter 7 case. You may still lose the house to foreclosure if you don’t pay your mortgage but you’ll avoid personal liability if you cannot pay on the mortgage in the future.

If you have equity in your house or car beyond what you can protect through exemptions, a chapter 7 trustee could sell your house or car to pay a dividend to creditors. In this case, your Lakelaw bankruptcy attorneys will advise you of the benefits of filing a chapter 13 case instead of a case under chapter 7. In chapter 13, you make monthly payments over the term of your plan but you get to keep your property.

Keeping your car in Chapter 13

If your car was repossessed before bankruptcy and you file a chapter 13 case, you can usually get the car back as long as you agree to make up any arrearage, keep the car payments current in the future, and keep the car insured. You will have to make all the payments in the amounts you agreed upon in your finance contract unless that contract was made more than 910 days before you filed your bankruptcy case. If your contract was made longer than 910 days before you filed your bankruptcy case, we can provide for payments of a reduced amount as the secured claim under your plan. That amount will be equal to the present value of your car. You’ll have to pay this in full over the term of your plan. The interest rate will also be lower than what you agreed upon in the finance agreement. Any savings will result in a greater payment to your unsecured creditors. The difference between the value of your car and the amount due on the finance contract with the car finance company will be added as a claim to your plan. You won’t pay any more – what you pay will be divided up among more creditors. But at the end of the plan, you’ll own your car free and clear.

Saving your House or Car in Chapter 13 bankruptcy
People frequently file chapter 13 cases to save their house from foreclosure or to save their cars from repossession. Here are questions our clients ask us

Frequently Asked Questions About Saving Your House or Car

What is a reaffirmation agreement?
A reaffirmation agreement is a contract with your creditor stating that you agree to pay your debt to that creditor – particularly on a secured claim – even though you are getting a discharge from all of your other debts in bankruptcy. In exchange for your agreement to keep paying for the debt secured by the asset, like your car, the creditor agrees not to repossess your car. Your reaffirmation agreement might be on the same terms as you originally agreed to or on new and better terms which your Chicago bankruptcy lawyer or
Milwaukee bankruptcy attorney might be able to negotiate for you.

Do I have to reaffirm the mortgage debt on my house?
Not necessarily. If you do, the lender will allow you to pay the mortgage just as you did in the past. Mortgage “servicing” will be just the same as it was before bankruptcy. But you will continue to be personally liable on the mortgage. If you don’t reaffirm the debt, the mortgage lender will continue to accept your payments. However, your mortgage may be serviced differently than it was in the past. You will have to be very careful after bankruptcy to be sure that you don’t fall victim to a technical default which will give the lender a chance to foreclose.

What happens to my modification agreement?
Your pre-petition mortgage modification agreement will remain in full force and effect.

Can I modify my mortgage after bankruptcy?
This is possible. We recommend that you complete your mortgage modification prior to your bankruptcy case if possible. In practice, it is more difficult to modify a mortgage after bankruptcy than before. On the other hand, it is easier to negotiate a short-sale or deed in lieu of foreclosure after bankruptcy than before bankruptcy.

What is redemption?
If you have personal property, like a car, which you are purchasing on credit, it might be worth a lot less than what you owe. Let’s say your car is worth $10,000 and you owe $15,000 on the car. Under the law, you can “redeem” the car from the creditor by paying $10,000 – what you owe on the car. Maybe you have $10,000 at hand. Maybe you can get it from a friend, family member or other source. If you don’t, however, and the car is reasonably new and in reasonably good condition, we can help arrange a bank loan – a redemption funding loan – which will allow you to pay off the car for what it’s presently worth and usually reduce your payment substantially. Ask us about redemption. We’ll raise the issue with you if it seems to be right for you.

How do I keep my house in chapter 13?
If you are behind in your mortgage payments, you have the right to “cure the default” in chapter 13. This means that your monthly payments will be used to make up the monthly payments you didn’t make before the chapter 13 bankruptcy case. This sort of plan makes sense for people who were ill or unemployed for a time but now find themselves back to their normal condition. This sort of plan makes sense if the value of the house is reasonably close to are greater than the value of the mortgage. You have to maintain your monthly payments, insurance and escrow current during your chapter 13 case as well.

How do I keep my car in chapter 13?
Keeping your car is more or less the same as keeping your house. You have to make up the payments you missed before the chapter 13 case. If the car loan is more than 910 days old, you have the possibility of dividing the car loan into two pieces. The first piece is equal to the value of the car. You’ll pay this over the term of your plan. You’ll pay this at a reduced interest rate as determined by the court. The second piece is the amount of the loan in excess of the value of the car. You’ll pay this at a fraction of the amount due just like your other unsecured creditors. We call this procedure “cram down.” You’ll have to get your car appraised and this might require a court appearance. Usually, we can negotiate this without court appearances.

How do I get my car back after repossession?
File a chapter 13 case. Agree to pay any arrearages on your car loan during the chapter 13 case. Keep the car insured. Make the normal payments due on the car loan after you file the chapter 13 case. We will file a motion to compel the financing company to return the car to you. Under an important case called Thompson v. GMAC, the lender must return the car to you.

Case Study:

Mr. G. owned a boat. It had over $10,000 due on the boat loan. The boat was only worth $4,000. The boat was very important to Mr. G. We appraised the boat and paid the lender $4,000 from Mr. G’s IRA. Mr. G. got to keep the boat and got rid of a very expensive boat loan.

Chapter 13 and mortgages

Chapter 13 bankruptcy gives you up to five years to work out your mortgage problems. Mortgages on the house you live in – residential mortgages – are different than mortgages on any other real estate. According to the Bankruptcy Code and the Supreme Court, you can’t change the interest rate or the payment terms of a mortgage on your house in chapter 13. On the other hand, we do have the possibility of making important changes to mortgages on any other real estate you might own.

Chapter 13 trustees and courts may not like the idea of you keeping real estate that you don’t need, especially if the expense of the real estate reduces the amount of money you could pay to your other creditors. So we have to work out your budget carefully.

Taking care of arrears

In general, people use chapter 13 in order to pay back any unpaid mortgage payments. We call this a “cure and maintain plan” because you can cure the defaults in your mortgage over a five year period and then simply “maintain” current payments on your mortgage as required under your deal with the lender. This is a good deal if you have some equity in your home that you would like to protect and if the payments on your mortgage are reasonable. “Cure and maintain” plans make sense for people who were temporarily unable to make their mortgage payments through causes like unemployment or illness.

Nowadays many homes have lost equity because of the housing crisis over the past few years. So you need to decide whether you want to keep your house. We think that the smartest thing to do is to compare what you are paying for the house under chapter 13 to what you would pay for renting or buying some other property.

Lien Stripping

Another important feature of chapter 13 is “lien stripping.” This lets you get rid of your second mortgage when it is completely “underwater” – in other words, when your property is worth less than what you owe on the first mortgage. In order to get rid of your second mortgage lien, you’ll need an appraisal to demonstrate that your house is worth less than your first mortgage. We will then file a motion or complaint with the bankruptcy court. The court will determine that the holder of your second mortgage really doesn’t have a mortgage at all. Instead, the court will order that the holder of your second mortgage has only an unsecured claim – just like one of your credit cards. If you make all the payments under your chapter 13 plan, you’ll accomplish two things. First, you’ll get a discharge of all of your debts. And just as important, you’ll get an order declaring that the second mortgage lien is null and void. You will own your home with just a first mortgage. This is a huge benefit of chapter 13. Your house might have been “underwater” and now you have the hope of building some equity in your investment.

Non-residential real estate

If you have a mortgage on real estate which is not your residence, chapter 13 can be a real help. You have to meet the debt limits of chapter 13 – in other words, no more than about $1.1 million in debt. But if you have an investment property which has a mortgage on it, you can modify the mortgage in chapter 13. You can reduce the interest rate. You can also divide the mortgage into two parts – a secured claim equal to the value of the building and an unsecured claim for the difference. The catch is that you have to pay the secured claim in full over the 5 year period of your plan.

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