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Three Myths About Chapter 13 Bankruptcy

What is a Chapter 13 Bankruptcy?  What do I need to know?  What are some common misconceptions about Chapter 13 Bankruptcy?  

Last week’s blog post described four myths about Chapter 7 liquidation bankruptcy. Continuing that trend, this week’s blog contains three myths about a Chapter 13 reorganization, or payment plan, bankruptcy.

The first myth is that the debtor will have to pay all of their monthly budget to the bankruptcy trustee. This is a myth because the bankruptcy code requires that the debtors pay disposable income, which takes into consideration things like mortgage or rent payment, utility payments, car payments, medical expenses, tax payments or withholdings, health insurance, prescriptions, child care expenses, meals and entertainment, and other monthly expenses at a reasonable level. So not every single penny has to go to the bankruptcy trustee every month in a Chapter 13 bankruptcy plan, although, at the same time, the debtor will not be able to accumulate tremendous savings in a chapter 13 absent some specific circumstances.

The second myth is that the debtor will not be able to move during the 3 to 5 year term of the bankruptcy payment plan. Again that’s not true. What’s relevant is where the homeowner, where the debtor lives at the time of the filing. If they live in Florida in Tampa, then they can file here in Tampa and if they decide moving later is the better option, they can do that. The debtor can leave Tampa, or they can leave the State of Florida, as long as they: (1) continue making their Chapter 13 plan payments to the bankruptcy trustee; (2) get permission to sell their home, if applicable; and (3) get permission to take on a new or different mortgage or rent payment (since that new payment will affect their monthly budget and possibly their ability to pay the trustee.

The last myth is that the debtor will not be able to buy a new house or a new car while they are in  payment plan bankruptcy. Credit issues aside, borrowers can borrow money for a new car or house while they are in a bankruptcy however, we will have to get permission from the bankruptcy court and from the bankruptcy trustee. We need to describe the source of the funds, and give a reasonable explanation for why the debtor wants to buy, to the judge and trustee. In most cases if that purchase is reasonable, like an old car broke down and we need to buy a new car or the lease is up with one apartment and we need to get a house or a second apartment, the trustee and the judge will approve of those requests.

For more information on Chapter 13 bankruptcy, reorganization, or a payment plan bankruptcy, please subscribe to the Crushing Debt Podcast, on iTunes, Stitcher, and GooglePlay. If you prefer, please contact us to schedule a free initial consultation to discuss your options at 727-261-0224 or email me directly at

Shawn M. Yesner, Esq., is the host of the Crushing Debt Podcast and founder of Yesner Law, P.L., a Tampa-based boutique real estate and consumer law firm that helps clients eliminate the financial bullies in their lives. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.

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