Chapter 13 Has a Few different Limits Than a Chapter 7.
Video Transcribed: Oklahoma Bankruptcy Attorney Edward Kelley, 888 Debtline answering your bankruptcy questions. We’re getting to the end of our series on ‘should I do a seven or 13?’ We talked about income. We’ve talked about whether you have secured or unsecured debt. We’ve talked about whether you have non-dischargeable debt. And now we’re going to talk about … primarily in a 13, the time limits you have.
I touched on this in the last one. Let’s say you have … as you know by now, tax debt filed less than three years ago was non-dischargeable. So, let’s talk about that. Or let’s talk about student loan debt. There’s a rule basically in a 13 that if your amount is due immediately for purposes of your creditor, or if the length of a loan that you’re in is less than the length of your plan, then you have to pay that inside the plan. This can hit you with student loans where you don’t have a fixed length, or primarily with taxes, which really aren’t a loan. They’re just a debt that’s immediately due, or defaulted loans that have been called, which essentially are due immediately.
You’ve got to figure out if you can pay it off in full. Let’s say you owe 25,000 in taxes. Well, let me make that easier for me on the math. Let’s say you owe 60,000 in taxes. That means you’re going to have to pay $1,000 a month toward those taxes. That’ll be on top of, for example, if you’re also behind on your house, which is often the case. Your mortgage payment, and the arrearage divided by 60. The thing is you can’t leave any of that tax debt out, or you can’t get your plan confirmed. Hopefully that’ll make sense. Or if you have a student loan that’s been called, or whose length ostensibly is less than the five years, you’ve got to pay that off in full.
There are many times when an otherwise feasible 13 gets hung up by this requirement that it’d be paid in full in the lifetime of the plan. So, very important. If that’s the case, then if you qualify otherwise you might as well do a seven. I know I said in the last time if you’ve got non-dischargeable tax debt, consider a 13 to lock it in. Bear in mind … I’ll just close with this. That’s great if it’s an amount that you can pay off within 60 months. If not, you’re going to be out of luck and you may want to do a seven so you can clear everything else out, and give yourself some room to make that IRS payment.
As I said before, the IRS … it’s hard to dig out because of the monthly interest penalties, fees. It’s really awful. And I’ll just go on an aside here, the IRS does have an offer and compromise. You may want to do that before you file bankruptcy because your financials will look worse, which will help you in that offering compromise. Basically you come up with a lump sum or short payment amount. The IRS will accept and forgive the rest. That’s a great thing to do and take care of before your bankruptcy while your debts kind of help you look more reasonable for that offer and compromise.
You do the bankruptcy, you may have a lot more disposable income, which is the kind of thing … almost like a 13 that they look at in those offers and compromise. There’s some more considerations. As always, you can reach me at 1888 Debtline, or Edward@wirthlawoffice.com. Or on Facebook at Oklahomans for Debt Relief. We will close out this series next time.