Chapter 13 article written by Columbia and Florence lawyer Daniel Stone
1. You can protect non-exempt assets. Huh? what does this mean? In the Chapter 7 context, if you own as asset such as a boat that is worth more than your state’s exemption protection, the Chapter 7 Trustee could come after it and sale it. For example, in South Carolina a Debtor is allowed a $5600 wildcard exemption they can use for any reason. If the hypothetical boat is worth $15,000, the Chapter 7 Trustee could force the boat to be sold.
However, in a Chapter 13, the Debtor would not lose the boat. The Debtor would however pay an increased amount to his or her unsecured creditors in the Chapter 13 Plan
2. More negotiating power. In my experience, Debtors have more room for negotiating with the Trustee in a Chapter 13. In a Chapter 7,if the UST thinks the case has too much income to be in a Chapter 7, there is little wiggle room for negotiating. However, in a Chapter 13, a Debtor has an opportunity to negotiate with a Chapter 13 Trustee on how much to pay the unsecured creditors.
3. Tax issues. Chapter 13 is a great starting point for IRS and state tax issues. Why? because the IRS is required to file a proof of claim. From the proof of claim a debtor can see where he or she stands in regards to priority or non priority tax debts. This allows the debtor to see how much of their tax debts will be discharged and how much they will be required to pay in full. In Chapter 7, no claim is filed and many times the Debtor is left wondering if he or she still has remaining tax debts.
4. Valuing cars and mobile homes. One of the best benefits of a Chapter 13 bankruptcy is valuing cars and mobile homes. Please note that the car loan must be at least 910 days old (there are business exceptions) and mobile homes cannot be valued if the mortgage includes the land.
By valuing a car or mobile home loan, a Debtor can potentially save thousands by proposing a plan to pay the fair market value of the collateral rather than paying the total amount of the loan.
5. Reduced interest for car loans. For most Debtors, Chapter 13 saves them money by allowing them to proposes Chapter 13 plans that pay a much lower interest rate than the contract rate. In South Carolina the interest rate for car loans in Chapter 13 plans is 5.25. Note, this interest rate also applies to other secured loans such as furniture or mobile homes being paid through the plan. Some Debtors save a significant amount of money if they have a high contract interest rate.
6. Stop a foreclosure or repossession. Chapter 13 allows a Debtor to stop a foreclosure and craft a plan that allows the Debtor to keep the house. In addition, if a car has been repossessed, in South Carolina, the Debtor can get the car back if he or she files bankruptcy and the car has not been sold.