Chapter 13 Bankruptcy

Chapter 13 offers individuals a number of advantages over liquidation under Chapter 7. Perhaps most significantly, Chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this Chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time.

Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual's unsecured debts are less than $336,900 and secured debts are less than $1,010,650.

The bankruptcy law regarding the scope of the Chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel such as Attorney Richard A. Rogerson regarding the scope of the Chapter 13 discharge.

Nondischargeable Tax Debt

If the taxes you owe are less than three years old, they cannot be discharged through Chapter 7, but they may be discharged under Chapter 13 bankruptcy. Similarly, taxes may not be discharged in Chapter 7 if they are older than three years but you did not file tax returns in those years, but they may be discharged in Chapter 13 bankruptcy. In Chapter 13 cases, taxes that are otherwise non-dischargeable in Chapter 7 bankruptcy are considered a "priority debt" that are potentially dischargeable in Chapter 13, and must be paid in full. BUT you do not have to pay interest and penalties going forward on that priority debt, saving potentially thousands of dollars on charges that might otherwise be imposed by the IRS or state revenue department. What Chapter 13 will do is effectively decrease the amount you owe by erasing future IRS penalties and interest from the equation.

Dischargeable Tax Debt

You can discharge your tax debt if:
• The taxes you owe are at least three years old.
• The tax return for those taxes was filed at least two years ago.
• The tax assessment is at least 240 days old.
• Your tax return was not fraudulent.
• You are not guilty of tax evasion.

Avoidance of a Lien

The avoidance of a lien is related to claiming an exemption in bankruptcy. Under normal circumstances, a debtor filing for personal bankruptcy is allowed to exempt certain property from the bankruptcy estate. If a judicial lien exists against this property, the bankruptcy court can remove the lien to the extent that the claim of exemption is being impaired by the lien. Therefore, it is possible to completely eliminate or partially avoid a lien. The debt underlying that lien would be discharged as well, leaving the property fully protected in the hands of the debtor.

Consensual and Nonconsensual Liens

There are two types of liens: consensual and nonconsensual. A consensual lien is where you have agreed to use an asset as collateral for a debt. Mortgages and auto loans are good examples of consensual liens. Consensual liens on real estate, like mortgages, are typically not capable of being avoided.

A nonconsensual liens are liens that a creditor imposes on you and that essentially gives them the right to force you to sell the asset so they get paid. Liens arising out of personal injury judgments or taxes are good examples of nonconsensual liens.

One of the main criteria for avoiding liens is that the asset to which the lien is attached must otherwise qualify as an allowable exemption under normal circumstances. Consensual liens against houses can be avoided if the house value is less than the value of the lien. This is becoming more and more common as housing prices continue to fall. Nonconsensual liens that possibly can be avoided include judicial liens on exempt property and liens involving a homestead exemption.

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