Chapter 13

Chapter 13 Bankruptcy In California

Chapter 13 bankruptcy reorganization is one method under the Bankruptcy Code to obtain relief from your creditors while providing a fair means to pay them back as much as you can. It allows you to keep some or all of your property during the time you are paying creditors, and permits you to modify some contract payments and interest rates. Your plan can eliminate late charges and penalties and allow you to extend payments on some of your debts. Chapter 13 has gained widespread acceptance as an attractive alternative to straight bankruptcy (Chapter 7).

Why File A Chapter 13?

Chapter 13 is often filed by people who are facing foreclosure on their home. In a Chapter 13, an individual can stop a foreclosure and pay back the delinquent mortgage payments over an extended period of time. A debtor may also be able to eliminate and remove 2nd Trust Deeds on their real property if the amount of the lien exceeds the value of the home. This lien removal is not automatic and requires special motions to be filed in the bankruptcy case. Chapter 13 is also filed by people who may not qualify to file a Chapter 7 bankruptcy.

Who Can File A Chapter 13?

To file a Chapter 13 bankruptcy case, you must be an individual (or a husband and wife filing jointly). If you own your own business as a sole proprietor or partner, you can include all business debts on which you have personal liability. You have to file your case in your name and not in the name of the business. This is because a business entity (corporation / partnership) cannot file for Chapter 13 bankruptcy.

What Is A Chapter 13 Plan?

A person who files under chapter 13 is called a Chapter 13 debtor. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. Chapter 13 plans usually extend over a period of 3 to 5 years. The plan must be approved by the court to become effective. If the court approves the debtor's plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.

Is Chapter 13 Different Than Debt Consolidation?

Chapter 13 differs from private debt counseling and consolidation in that the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example , the court has the authority to prohibit creditors from attaching or foreclosing on the debtor's property, to force unsecured creditors to accept a chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers. You do not qualify for Chapter 13 bankruptcy if your secured debts exceed $1,010,650 or your unsecured debts are more than $336,900. For example, if you owe over a million dollars on your home, you may not be able to file for Chapter 13 bankruptcy if you have other secured debts. 

Advantages of Chapter 13

Repay creditors over time
Not everyone qualifies

Chapter 13 Bankruptcy

Services by Equal Justice Law Group

Equal Justice Law Group provides complete Chapter 13 Bankruptcy services to individuals just like you. Our team has decades of experience in this field and has served thousands of clients.

Chapter 13 bankruptcy is designed to give you the opportunity to reorganize your finances, pay off creditors over time, and return to financial health without the liquidation involved in Chapter 7. Here's how it works:

Chapter 13 bankruptcy is designed for people who receive a qualifying income. When you have a regular income (such as from a steady job, pension, Social Security, family assistance), the court sees this as an ability to make regular debt-maintenance payments – even if your pay is insufficient to pay all of your acquired debt.

When you file Chapter 13 bankruptcy, you provide the court with a plan to repay your creditors over a period of three to five years. At the end of your payment period, any unsecured debts that remain unpaid are extinguished. Some debts cannot be discharged at the end of the plan, including alimony child support, most student loans, and some taxes. 

It's important to note that not everyone qualifies for Chapter 13 bankruptcy.

To find out if you are eligible for Chapter 13 bankruptcy, or if Chapter 7 makes more sense for you, we invite you to contact us at Equal Justice Law Group. With offices in Sacramento, Sutter Creek and Placerville, we're nearby and ready to serve you.And as always, your case evaluation and initial consultation are both confidential and absolutely free.

Eligibility and Repayment

The bankruptcy court will not approve Chapter 13 for a debtor who has too low of an income, or too irregular of an income.

In addition, debtors with too much debt will be excluded from Chapter 13 by the court.

You must submit either a 3 or 5 year repayment plan to the court as part of Chapter 13.

Advantages of Chapter 13

Although you can eliminate mortgages and auto loans in Chapter 7 cases, a chapter 7 does not provide a mechanism to bring past due payments current.  Because home loans and auto loans are secured, if they are not kept current, the lender will eventually be able to foreclose or repossess its collateral even though delayed by a Chapter 7.

NOT SO IN CHAPTER 13!  In Chapter 13 a successful repayment plan can give you up to five years to bring past due payments current so you can protect your home from foreclosure and your car from repossession. 

In addition, in some circumstances you can completely eliminate junior liens on your home (i.e. a second or third mortgage), reduce the interest rate and possible the payoff balance on your car loan, or even protect assets that could subject to a liquidation ("sale") in a Chapter 7.  A qualified attorney can help you navigate these complexities and develop a strategy that makes sense for your needs.

Because Chapter 13 requires a repayment plan, those filing this way are required to take a California Means Test. The two outcomes are:

  • Your income is greater than the state's median income; you must propose a 5-year repayment plan
  • Your income is less than the state's median income; you may propose a 3-year repayment plan

Inability to Make Payments

If unforeseen issues prevent a Chapter 13 debtor from making his or her agreed-to payments, Equal Justice Law Group will try to convince the court of one of the following options:

  • Modify your repayment plan
  • Discharge the remaining debt
  • Convert to a Chapter 7 bankruptcy

Bonus Content: What You Should Know About The Means Test Before Filing

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