Bankruptcies Can go Well if Done Correctly.
Video Transcribed: Oklahoma Bankruptcy Attorney Edward Kelley finishing up on our series on should I do a 7 or 13? So quickly in review, first we talked about what’s your income. There are income caps on whether you can do a 7. They’re not hard caps.
If you’ve got expenses, unusual expenses that pull you back down under, they use gross income, but they do give you dollar for dollar for your mortgage and for your car payment. So if you have unusually high mortgage payment or maybe you got a 15 year loan, probably not if you’re in bankruptcy, but you never know, or a really high car payment. I do see that a lot.
If you’re going to keep those things… you can’t use those expenses if you’re surrendering them. But if you’re keeping them, those may pull you back down under, or if you have unusual medical costs out-of-pocket, those kinds of things can bring you back. But if you’re too far over… let me also mention social security does not count toward whether you qualify.
So you can often get in if the majority of your income or a good chunk of it is social security, but you still have to calculate your disposable income on what I call the back end. So you’re still going to need expenses to meet it. If you have a lot of disposable income, left over due to your social security, still got a problem.
So you get past that. Then you look at do you have unsecured or secured debt? If you’ve got unsecured primarily, and if you’re current on your secured for what you want to keep or if you’re surrendering your collateral, by all means if you qualify, do a 7. Cut and run, done.
If you’ve got secured debt, however, that is behind, for example, your home or your vehicle or anything else that’s properly secured… and that’s another thing to check with your attorney, whether something’s properly secured.
Second mortgages and things like that can often be stripped off, so we’ll talk about that another time. But if you’re behind and you want to keep that house or car, got to do a 13. There’s not a method to cure that arrearage in a 7.
So once you clarify and determine what you need to do as far as your income and the nature of your debt is unsecured or unsecured, then you look at do you have non-dischargeable debt? If so, will a 13 help you lock it in and freeze it? IRS debt.
Avoid all those penalties and monthly deals. It’ll have interest built in, but you’ll get locked in and paid off through the trustee in the plan and get a lot better treatment than you would just you yourself dealing with the IRS.
On the other hand, if you’ve got a debt that it’s not going to be any higher or lower than in the bankruptcy, do a 7. Cut and run and get rid of all your other debt, free yourself up to pay it, which may often be the case in student loans, which may have a long term.
But that leads us to the last consideration for debts that are due immediately or pay off in less than the 60 months, which is the maximum length of a chapter 13, can you pay it? So if you have $60,000 in tax debt, of course, that’s due immediately, ostensibly. So you throw that into a Chapter 13 plan.
You’re not going to get your plane confirmed and be able to do the case unless you can pay at least $1,000 a month toward that debt. If you can’t, no point doing it. Do a 7. Get rid of everything else.
I did, though, talk about offers and compromise. If you’re trying to do that with the IRS, do it before your bankruptcy, while your debt to income looks horrible, because the bankruptcy’s only going to increase your disposable income.
So this concludes our series, should I do a 7 or 13? I’ll be back next week with something else. And in the meantime, you can always reach me 888-debtline, Edward Kelley, or at Edward@wirthlawoffice.com or on Facebook, our group, Oklahomans For Debt Relief.