Chapter 13

Chapter 13 can be a good solution for those who need time to pay off debts and whose income is too high to qualify for a Chapter 7 liquidation bankruptcy.

In a Chapter 13, you typically get to keep all of your property. However, you will need to pay your unsecured creditors the value of the property you would lose if you filed for Chapter 7 bankruptcy.

If you are facing foreclosure on your home, Chapter 13 provides a powerful remedy. You can keep your home by proposing a feasible repayment plan that includes your missed payments, as long as you stay current on your mortgage.

Chapter 13 Eligibility

You do not qualify for Chapter 13 if your secured debt exceeds $1,081,400 or if your unsecured debt exceeds $360,475.

Your proposed repayment plan must pay a certain percentage of your debt. If your current monthly income, less reasonable living expenses, won’t allow you to pay that amount within the plan period, then the judge will not confirm your plan. You are required to pay all priority debt (tax debts, child support, etc.) and secured debts.

Your unsecured creditors must get at least as much as they would have received in a Chapter 7 liquidation.

Chapter 13 offers you a number of advantages over liquidation under chapter 7:

  • Chapter 13 offers you an opportunity to save your homes from foreclosure. By filing under this chapter, you can stop foreclosure proceedings immediately and may cure delinquent mortgage payments over time. However, you must still make all mortgage payments during the chapter 13 plan.
  • Chapter 13 allows you to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments.
  • Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co-signers.
  • Chapter 13 is similar to a consolidation loan under which you make the plan payments to the Trustee, who then distributes payments to creditors. Creditors cannot contact you directly while you are protected during the life of the plan.

While generally Chapter 7 is generally preferred to Chapter 13, it is exteremely important that you discuss all options with an experienced bankruptcy attorney in order to find out which Chapter is right for you.

The Chapter 13 Process

  1. Goodman & Dicus LLP will schedule a consultation to review your case.
  2. Prior to filing, you will need to complete an online credit counseling course.
  3. After reviewing your information, an attorney will prepare your bankruptcy petition. Based on your income and expenses, we can estimate your plan payment.
  4. We will schedule an appointment to review the bankruptcy petition, answering any questions, and sign all required documents.
  5. We will file the complete petition with the court and pay all court fees.
  6. The court will schedule a “meeting of the creditors.” This meeting with the Trustee is mandatory, but an attorney will attend with you. This hearing is typically scheduled about one month after the petition is filed.
  7. After the meeting of creditors, the court will schedule a “confirmation hearing,” where the judge will review the plan and address any concerns of the Trustee. If the judge agrees with the plan, he or she will confirm the plan.
  8. Plan payments will be made monthly during the life of the plan. The plan can last either 3 or 5 years.
  9. Sometime after filing, you will be required to complete an online financial management course. This course is mandatory, and must be completed before the case is closed.
  10. After the plan term is completed, the court grants the discharge. The case is typically closed within one week of the judge ordering the discharge.

What will happen to my home if I file for bankruptcy? 

If you have non-exempt equity in your home, Chapter 7 bankruptcy may not be the best strategy to deal with your debts. If that is the case, the Trustee may have the power to sell your home. If you do not have non-exempt equity, you must keep making your payments before, during and after bankruptcy. If you have already missed payments, you’ll have to make them up to avoid foreclosure. Chapter 13 (link) provides many opportunities for saving a home that are unavailable in Chapter 7 (link).

What will happen to my car if I file for bankruptcy? 

There are ways to protect your car when you file for bankruptcy. If you still owe money on the car, then the Bankruptcy Court cannot take away your car because you don’t have the title. Your lender will typically not repossess the vehicle if you continue to make your regular monthly payments. If your car is paid off, then you will need to protect it from the Bankruptcy Court by using the applicable bankruptcy exemption laws.

How long does a Chapter 13 take? 

A Chapter 13 repayment plan will last either three or five years, depending on your gross income when you file. If your income decreases significantly during the life of the plan, you may be eligible to convert your case to a Chapter 7.

Can I avoid being evicted by filing for bankruptcy? 

If the landlord does not already have a judgment when you file, and he or she wants to evict you based on your failure to pay rent or violation of another lease provision, the automatic stay will prevent the landlord from beginning or continuing with the eviction proceedings. However, the landlord can request that the judge lift the automatic stay, and judges tend to grant these requests. If your landlord has already obtained a judgment of possession against you when you file for bankruptcy, the automatic stay won’t help you (with some exceptions). The landlord may proceed with the eviction just as if you had never filed for bankruptcy.

Will I lose my retirement account or pension? 

Not likely. When it passed the new bankruptcy law in 2005, Congress created a broad exemption for all types of tax-exempt retirement accounts, including 401(k)s, 403(b)s, profit-sharing and money purchase plans, IRAs, and defined benefit plans.

Can I get my student loans cancelled or reduced in bankruptcy? 

Any “qualified educational loan” will not be discharged in bankruptcy unless the debtor shows “undue hardship.” Undue hardship is defined by the Internet Revenue Code, and is very difficult to prove. Suffice to say, it is extremely difficult to get student loans discharged in bankruptcy.

Should I sign a reaffirmation agreement after I file for bankruptcy?

When you reaffirm a debt, both the creditor’s lien on the collateral and your personal liability survive bankruptcy without a discharge, just as if you never filed for bankruptcy. If you default, you can be held liable for the difference between what the property is resold for and what you still owe under the agreement. Reaffirmation can provide a way to keep certain property, as long as you abide by the terms of the reaffirmation agreement and can be a good way to reestablish your credit. However, you will be legally bound to pay the agreed-upon amount even if the property is damaged or destroyed. And since you cannot file for Chapter 7 again until 8 years have passed since your earlier bankruptcy discharge, you will be stuck with the debt.

Can I be fired because I file for bankruptcy? 

Private employers may not fire you or otherwise discriminate against you solely because you filed for bankruptcy (11 U.S.C. §525(b)).

Chapter 13 – Plan Confirmed – Santa Ana

August 2013

Filed under Chapter 13 to stop a foreclosure on client’s principal residence two days before the foreclosure sale. No property will be sold to pay creditors. Plan was confirmed with 10% to be paid to unsecured creditors over five years.

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