Chapter 13 bankruptcy provides consumers with a way to consolidate debt under federal law, and repay creditors a portion of what is owed over a 3-5 year period. In a Chapter 13 bankruptcy, the consumer makes sufficient income to pay all of their current living expenses (rent, food, car, utilities, etc.), but not enough to pay off all debts in full or comply with their creditors’ demands. In a Chapter 13 bankruptcy, the consumer’s living expenses are paid first, then whatever monthly income is left over goes into the consolidation plan.
In most cases, the plan is not based on what a consumer owes, but rather on their financial ability to repay creditors. The payment plan calculations involve many variables, but most importantly a consumer’s monthly income and expenses. Choosing a Chapter 13 bankruptcy can be particularly useful for consumers with assets over the exemption amounts, non-dischargeable debts, or who are facing foreclosure but would like to save their homes.
- Upon filing bankruptcy, the court issues an automatic stay, stopping harassment by collectors
- Lets you choose the type of secured debt you would like to keep and helps you get current on those debts
- Prevents foreclosure
- Stops garnishments
- Creates a manageable payment plan for debts
For more questions, check out our Frequently Asked Questions or give us a call at (714) 617-8387 today to speak with an attorney about your specific financial situation.
Another benefit of Chapter 13 bankruptcy specifically for homeowners is that past due mortgage payments can be put into the Chapter 13 bankruptcy plan and paid off over the plan period, rather than all at once. So long as you can continue to make regular mortgage payments, the bank cannot foreclose on your house simply because you chose to put mortgage arrearages into a Chapter 13 bankruptcy plan.
In a Chapter 13 bankruptcy, you must submit a plan in which you set out a budget detailing your monthly take-home pay and living expenses. Any excess income is then paid to the bankruptcy trustee, who distributes money to your creditors on a pro-rata basis. The plan lasts for 36 to 60 months, depending on your income and the total amount of your debt. At the end of the Chapter 13 bankruptcy plan period, any amounts still owing on your unsecured debts are forgiven. Chapter 13 bankruptcy payments can be automatically withdrawn from your bank account by the trustee if you so choose once your repayment plan is confirmed.
Depending on the bankruptcy laws of the state you live in, a consumer may be able to exempt certain property from the bankruptcy estate. By exempting the property from the estate, the consumer is able to keep this property according to the federal or state exemptions in effect. In California, there are two sets of exemptions that a debtor can choose from when filing for bankruptcy.
Contact one of our experienced attorneys at (714) 617-8387, or click below to Chat Live with an attorney for help in determining which set of exemptions is best for you.
What is bankruptcy?
Bankruptcy is relief for consumers that is provided under a federal law, allowing them to have certain debts forgiven. This law is designed to help consumers who sometimes simply do not have the ability to meet their repayment requirements. The underlying philosophy of bankruptcy laws are based on forgiveness rather than punishment.
What is an “automatic stay?”
Once you file your bankruptcy petition, an “automatic stay” goes into effect. This stops creditors from trying to collect any debt from you while you are going through the bankruptcy process. Furthermore, the automatic stay stops creditor phone calls, letters, wage garnishments, lawsuits, and any other scare tactic used by creditors of debt collection agencies.
What is a “discharge?”
Once the court grants the bankruptcy petition, the consumer then receives a discharge from the court. A discharge is a legal release from debts. Creditors are left with no legal resource to contact you or pursue any of the debts listed in the bankruptcy documents.
What is the difference between Chapter 7 and Chapter 13 bankruptcy petitions?
There are two ways for the typical consumer to file for bankruptcy. Chapter 7 is the most common type of bankruptcy, and it allows a consumer to discharge debts completely through a relatively short process. Under Chapter 13 bankruptcy, a petitioner is given a chance to rearrange their financial affairs and repay just a portion of your debts. Both Chapter 7 and Chapter 13 bankruptcy can help protect assets (including your home), give you leverage with creditors, and provide you with breathing room and a fresh start.
What is a Chapter 7 bankruptcy?
Chapter 7 is the most common type of bankruptcy. A discharge under a Chapter 7 bankruptcy discharges all qualifying debts, including but not limited to, credit cards, medical bills, and most other debts. In Chapter 7 bankruptcy, there is no repayment for most unsecured debts. In most cases, the consumer keeps all of their property, which may include cars and/or real property. The process takes roughly 3-4 months to complete. After the bankruptcy is over, the consumer may reaffirm certain debts in order to keep certain secured property.
What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy provides consumers with breathing room and a new plan to repay creditors a portion of owed debt over time. Chapter 13 bankruptcy is designed for consumers who make sufficient income to pay living expenses but are currently unable to meet all their obligations. In a Chapter 13 bankruptcy, monthly living expenses are calculated first, and any remaining income is used to pay towards outstanding debt. The plan is based on each consumer’s ability to repay their creditors. Chapter 13 bankruptcy is appropriate for consumers with assets over the exemption amounts, or non-dischargeable debts.
Do I have to sell everything I own under a Chapter 7 bankruptcy?
No. In 99% of Chapter 7 bankruptcy cases, an individual does not have to sell anything they own to receive a discharge of their debt.
What is the “means test?”
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Under the BAPCPA, Congress established new rules for individuals seeking to file bankruptcy. Among these rules was a test based on a mathematical formula, which is used for determining whether or not an individual qualifies for a Chapter 7 bankruptcy filing. Contact a licensed bankruptcy attorney for more information on this formula and whether or not you qualify for Chapter 7 bankruptcy.
Do I lose my car if I declare bankruptcy?
Most individuals under Chapter 7 bankruptcy are able to keep their car and other personal property.
Does bankruptcy discharge child support obligations?
No, most child support obligations are not dischargeable in bankruptcy.
Are taxes dischargeable in bankruptcy?
No, most taxes are not dischargeable in bankruptcy.