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JoeLawyer, Attorney
Category: Bankruptcy Law
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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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Hi, I am recently unemployed in Illinois USA, and worried

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I am recently unemployed in Illinois USA, and worried about retaining my house & cars as well as my financial future if I do not find employment soon. Should I consider Chapter 13 to secure my house/ cars now?
Supplemental info:
I received a 10 week severance
I need to find employment in my profession at a salary level before I was let go. My wife works, but only part time, and brings in on 1/8 of my previous salary.
My current credit rating is excellent.
I have a mortgage, 2 car payments, and recent medical expenses that total approx 5,000.
I have a savings, 4,000 most of which will be used to pay for property taxes
I have a 401K, toals approx 75,000.

Please advise

We cannot give legal advice online, only legal information, so I will address your concerns to the extent I can, but you will need to consult with an attorney in your jurisdiction for legal advice (i.e. I cannot answer "should I" but I can tell you some things to consider...)

I can say that generally, Chapter 13 is not helpful if it is filed too soon. Chapter 13 generally allows one to keep houses and cars on which payments are behind by curing the arrearage through the Chapter 13 Plan. The debtor in bankruptcy generally has to start paying the Chapter 13 Plan within 30 days after filing the bankruptcy case, and all payments that are behind BEFORE the case was filed can normally be cured so the house and cars are protected.

So, if you are unemployed and do not currently have sufficient income and you file Chapter 13, if your income is too low to make the Chapter 13 Plan payments plus mortgage payments going forward, then the case will get dismissed and you wasted a lot of money. Also, if you file Chapter 13, even if you can struggle along for awhile, if you cannot afford both the mortgage and the Chapter 13 Plan, then if the house gets behind AFTER the case is filed, the creditor will request permission to foreclose.

So... generally, it is ideal to wait until you have a new income source, then file Chapter 13 and catch up payments on the house through the Chapter 13 Plan plus you can normally pay car loans through the Plan as well, thus curing any arrearage on those too.

The catch, of course, is hoping you find a job with sufficient income to accomplish all these goals before the house is foreclosed and the car is repo'd. But, if you file before you can afford the reorganization, all you buy yourself is a couple of months and then the house will get foreclosed and the car will get repo'd anyway, plus you're also out attorneys fees and a filing fee for the Chapter 13, if that makes sense.

Another way of saying this is that Chapter 13 will fix arrearage which occurred before the case was filed, but it will not normally fix anything that goes unpaid after the case is filed, so you normally want to be sure your income is stable and sufficient before filing the case.

Another consideration is the Means Test. This is a test in which you list how much money your family made in the previous 6 months, and then after much ado, it determines the minimum amount your Chapter 13 Plan payments can be. It is more detailed than this, but I think that explanation suffices for your purposes. So, the ideal time to file (generally) is right AFTER you get a new job, because at that point you can afford the Chapter 13, and your previous 6 months income is as low as possible, thus mandating a lower payment.

All of these timing issues are things you should discuss with your attorney to see what works out best for your specific circumstances.

If you have any more questions, or if something I said doesn't make sense, please let me know!


LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above is (c) Joseph Ross. All rights reserved.
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