Long Beach Bankruptcy Attorneys
Chapter 13 Bankruptcy
Chapter 13 bankruptcy provides relief to people who have regular income to make payment toward their debts, but have fallen far enough behind that they’re unable to regain control of their finances. The debtor makes regular monthly payments to the bankruptcy trustee over three to five years, keeping new payments current while making small payments toward past-due balances. In some cases, some unsecured debt may be discharged on successful completion of the repayment plan.
The most common reasons for choosing Chapter 13 bankruptcy include:
- Trouble with secured debts, which can’t be discharged in Chapter 7 but may be included in aa Chapter 13 repayment plan;
- Income too high to qualify for Chapter 7 bankruptcy; and
- Non-exempt assets that the debtor wants to keep.
Although Chapter 13 bankruptcy is far less common than Chapter 7, it can be the best solution for those hoping to stop foreclosure, save other property that serves as security for a debt or who simply have too much income or too many assets to take advantage of Chapter 7 bankruptcy.
Filing for Chapter 13 Bankruptcy
Like Chapter 7 debtors, a Chapter 13 bankruptcy petitioner must complete a credit counseling session in person, by telephone or online before filing.
The Chapter 13 case is also commenced with the filing of a petition and schedules, and an automatic stay takes effect immediately in most Chapter 13 cases, putting an immediate stop to most collection actions. The key difference is that the petitioner in a Chapter 13 case must also file a proposed repayment plan. Creditors will have an opportunity to object to the plan and it may be necessary to amend the plan before confirmation.
Once the plan is confirmed, the debtor begins making regular monthly payments to the bankruptcy trustee in accordance with the plan. The trustee takes responsibility for distributing the appropriate amounts to creditors included in the plan. When the plan has been successfully completed and the debtor has completed a financial management course, remaining unsecured debt may be discharged.
It’s important to note that failure to make plan payments as scheduled can result in involuntary dismissal of the case, which may result in collection actions recommencing and the loss of any anticipated discharge. If income or another factor changes during the course of a Chapter 13 case making it impossible to keep up plan payments, it is the debtor’s responsibility to contact his or her attorney and seek to modify the plan in accordance with the new circumstances.
The Benefits of Chapter 13 Bankruptcy
The most obvious benefit of Chapter 13 bankruptcy is that it stops collection action and allows three to five years to catch up past due balances. Often, this may mean the difference between losing secured property and having the breathing room to get back on track. And, of course, discharge of some unsecured debt may mean that the Chapter 13 debtor ultimately pays less than if he or she had managed to make repayment outside of bankruptcy.
Other benefits depend on the specifics of the case, but may include reducing the balance on automobile loans, pre-empting fees that would otherwise be added to the account on a monthly basis and otherwise setting more reasonable terms for repayment.
In addition, the Chapter 13 debtor typically retains all assets.
Qualifying for Chapter 13 Bankruptcy
There’s no means test for Chapter 13 bankruptcy. However, there are some requirements and restrictions that determine whether or not a person is eligible to enter into a Chapter 13 plan:
- Regular income which will enable the debtor to make monthly plan payments;
- Unsecured debts of no more than $394,725; and
- Secured debts of no more than $1,184,200.
Although these limits allow most consumers to file under Chapter 13, some California residents with large mortgages will be precluded from filing under this Chapter if total secured debt exceeds $1,184,200. Some debtors in that situation may choose to file under Chapter 11.
You can learn about Chapter 7 bankruptcy here.
Talk to a Chapter 13 Bankruptcy Attorney
If you’re struggling with debt and aren’t sure how to regain control of your financial life, find out whether Chapter 13 bankruptcy might provide the time you need to catch up on past due balances and start building financial security for your family. Fill click on the button below or call us at (562) 257-6576 to schedule a free consultation.