Interviewer: What if someone simply has a lot of things that car payments ended up getting him to that debt, did you ever see that kind of situation?
Brad Weil: With the car payments, what I like to do is I like to include the car debt to be paid in full through the plan. And so, if you’re including the car debt in the plan, then the plan payment becomes your car payment. And in some cases, your plan payment will actually be less than what your car payment was because your interest rate is lower. And in some cases, they can actually stretch out your debt to 5 years. Let’s say you only owe 3 years on a car but your car payment is higher, so it’s $700 a month for the next three years. Or if you file a bankruptcy and you propose a 5-year plan, you can stretch your car payment filed over five years, your plan payment’s going to be lower than what your car payment was.
We’d save people a lot of money by including their cars in the plan not only from interest rate savings but from the low monthly plan payments than what their car payments were. And again, the trustee’s going to turn around and distribute the money into the car creditor. But while you’re in the bankruptcy, the car creditor can repossess your car. So, whilst you’re current on those plan payments, then you’re safe.
Interviewer: What differentiates Chapter 13 from Chapter 7 the most?
Brad Weil: The payment plan. In Chapter 7, there is no payment. There is a trustee but the trustee’s job in Chapter 7 is defined in so non-exempt assets. So, the Chapter 7 trustee is looking for the things he can sell, things that you can own and he can sell, turn in the money and pay the creditors with it. The Chapter 13 trustee is not going to sell anything. The Chapter 13 trustee is going to collect the monthly payments from you and then, use that money to pay your creditors. Interesting tidbit as well if you do have non-exempt assets that you would lose in Chapter 7, you can file a Chapter 13. As long as you pay your unsecured creditors at least as much as they would have received in a hypothetical Chapter 7, you can keep those non-exempt assets and pay your creditors back over time. And it’s rarer, in my practice, but that is another reason why somebody would choose a Chapter 13 over a Chapter 7 if they have a non-exempt asset that they want to achieve.
Interviewer: What are some things that you have to dispel from time to time with the people that have concerns with credit issues. Some people believe that they may not be able to buy a house again or something along those lines, I mean what would you tell that individual?
Brad Weil: Well, frankly, it all depends on where that individual is at. If the individual that’s losing their home to foreclosure, you don’t need to worry about buying a home; you need to worry about saving the home you have. One of the downsides to Chapter 13 is that you will be in the bankruptcy for 5 years. And while you’re in the bankruptcy, your credit is frozen. You cannot borrow money. And some people, that’s a relief. Some people look at in and they say “That’s how I got into this mess in the first place of borrowing money …”
Some people say “Oh, no. You know I need a credit card”. Now, you can use debit cards which you have to be careful because the debit card is attached to your bank account and that money is coming out of a bank account so that money has to be there. But sometimes, the Chapter 13 can be a way for somebody who has never budgeted to actually budget and keep a tire watch on their money because sometimes, the individual does not have a money gram, they make enough money, they are to spend income. They don’t know where their money is going because they’re not tracking it.
If you get rid of a credit card, if you get rid of the “Let me just swipe this and I can buy that fancy thing”, then they actually have to pay cash. And people are much less willing to depart with cash and they want to swipe that credit card, so it makes people more conscientious of what they’re buying and how much they’re paying because when you keep to the end of that grocery line and you know that 150 odd grocery bill comes up and you have to pay that out $150 cash and pay or you have to swap a debit card and you know that money is coming out of the bank account, you may rethink some of those purchases versus just hand me somebody your credit and “Now, worry about it next month”. So, sometimes it can be a good thing and sometimes, people say “Well, I can’t have my credit frozen for that long”, and they choose not to do it.