Interviewer: What percentage on their debt do people have to typically payback in a 13? I mean is there much benefit doing it or no?
James Logan: I’d say the minimum percentage is about 10 to 15 per cent. Most of the cases that we file are following that range because they’re filing to save their house not to pay off their debts. But if you had a lot of equity in a house that we couldn’t protect in a chapter 7, we might have to file what we call a 100 % chapter 13 plan where you ought to pay a 100 % of what your debts are, which can be a good deal because a creditors only have a 120 days from the day you file to file a claim with the court.
An Individual Having Equity May Not be Able to File a Chapter 7 Bankruptcy
So, if, say, you have $20,000 in debts and we file a chapter 13 and only $15,000 of them file claims but then, you’ll only have to pay the $15,000 and the other $5,000 will get wiped out, so it could still be a good deal for you in a 100 per cent plan. But if you have got equity, you may not be able to file a chapter 7.
Occasionally People May Find Themselves Ineligible to File for Bankruptcy Because They Have Too Many Assets and Not Enough Income
Interviewer: Do you ever get people that are falling between the two and neither solutions really good maybe because they have too much debt, I mean their debt’s ceiling?
James Logan: The most common situation, elderly clients who come in and their house is free and clear and it’s worth $100,000 or more and they’re on social security of, $800 to $1,000 a month. They’ve got $30/40,000 in debts, they don’t make enough to file a chapter 13 because the plan payment would be $7/800 a month which would be their entire income. And we can’t do the chapter 7 because they would lose their house in a chapter 7, so they’re stuck between the rock and a hard place. Sometimes, we can do a reverse mortgage and get them out of debt that way but there are people that we just can’t file any chapter for because they fall under that, too many assets that we can’t protect and not enough income to pay what they would have to pay.
The Limit for Filing a Chapter 13 Bankruptcy is $ 1.3 Million for Secured debt
Interviewer: So anyone can owe too much money where they’re, for some reason, not allowed to file 13 or 7?
James Logan: There is a limit in chapter 13, it’s about 1 million now for secured debt, which came up a couple of times during the boom years when people had these in enormous million dollar mortgages, or $383,000 in unsecured debt. Chapter 7 doesn’t matter how much debt you have and you can always file a chapter 7 if you meet all the other requirements.