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Chapter 13 bankruptcy is appropriate for individuals that have regular income and either do not qualify for Chapter 7 relief, have and want to keep valuable property in excess of their exemptions, or want to keep their home or car but have fallen behind in their loan payments. In Chapter 13, you can consolidate overdue payments and repay pre-filing arrearages in monthly installments for a period of up to 5 years. Rather than wiping out debts immediately, this option allows you to reorganize them so you have time to pay. Our Bakersfield bankruptcy lawyers are experienced in helping individuals file for protection under Chapter 13 of the Bankruptcy Code.
This page provides the following Chapter 13 Bankruptcy Information:
● Chapter 13 Overview
● The Chapter 13 Process (Automatic Stay, 341 Meeting, Financial Management Course, Chapter 13 Plan, Discharge)
● Non-Dischargeable Debts in Chapter 13
● Advantages of Chapter 13
● Who is eligible to file for Chapter 13 Protection?
Chapter 13 Overview
Chapter 13 Bankruptcy is often referred to as a bankruptcy repayment plan. It enables wage earners to propose a three to five year plan to repay their creditors. Chapter 13 is similar to loan consolidation in that one payment is made to the Chapter 13 Bankruptcy Trustee each month, who in turn distributes the payment to your creditors.
Chapter 13 allows individuals to restructure their secured debts over the life of the plan, which may result in lower monthly payments. Some debts must be paid in full under the plan while others may be repaid only partially or not at all, depending on what you can afford and the particular facts of your case.
The monthly payment amount and length of Chapter 13 plan depending on a number of factors including:
● Your monthly income
● Your monthly expenses
● The amount of your debt and whether it is secured (e.g., home mortgage, auto loan) or unsecured (e.g., credit cards)
● How much your unsecured creditors would have received if you filed under Chapter 7 instead
The Chapter 13 Process
If after you consult with our Bakersfield bankruptcy lawyers you conclude that a Chapter 13 bankruptcy is the best solution to resolve your debts, we will ask you to provide us with certain documents (e.g. last two years of tax returns, recent paystubs, copies of all your debt statements and correspondence) so that we can begin preparing the Chapter 13 Petition to file with the court. After we prepare the Chapter 13 Petition, you will review it for accuracy and completeness. Prior to our filing of your petition, you must attend a credit counseling education course (either online or over the telephone). Once you have completed the credit counseling course and confirm that the petition is complete, our Bakersfield bankruptcy lawyers will file the petition with the Bankruptcy Court Clerk’s office.
Upon the filing of the petition, most creditors are restrained from taking any additional action to recover the debt. This restraining act is called the “automatic stay.” The automatic stay is very powerful in that it prohibits actions to collect debts unless the bankruptcy court enters an order lifting the stay to permit a creditor to proceed with collection or enforcement. The stay arises by operation of law and requires no judicial action. Provided that the stay remains in effect, your creditors generally may not initiate or continue garnishments, lawsuits, or communications demanding payment.
Unlike Chapter 7, the automatic stay in Chapter 13 protects co-debtors. Unless the Bankruptcy Court authorizes otherwise, your creditors cannot take collection efforts against co-debtors on consumer debt. The Bankruptcy Code defines the term “consumer debts” as those incurred by an individual primarily for personal, familial, or household purposes. While the stay provides great benefit, the Bankruptcy Code does limit its protections in some circumstances.
341 Meeting of Creditors
Approximately 20 to 50 days after the filing of the petition, you will appear with one of our Bakersfield bankruptcy lawyers at a meeting with the Chapter 13 Trustee assigned to your case (the “341 Meeting of Creditors”). At this meeting, the Trustee will place you under oath, and both the trustee and creditors may ask you questions related to your Chapter 13 Petition, your financial affairs, and the proposed terms of your Chapter 13 Plan.
Financial Management Course
To qualify for a Chapter 13 discharge, the Bankruptcy Code requires you to complete a Post-Filing Debtor Education Course (we will refer you to either an online or telephone course). If you fail to complete this course within the time required, then your case may be closed without a discharge being issued.
The Chapter 13 and Plan Confirmation Hearing
Our Bakersfield bankruptcy lawyers must file your Chapter 13 Plan with the bankruptcy petition or within 15 days after filing the petition, unless the court grants an extension. Your Chapter 13 plan will provide for payments of fixed amounts to the trustee on a regular basis. The trustee will distribute the funds to creditors pursuant to the plan. Depending on your particular circumstances, the plan may offer creditors less than full payment on their claims.
The length of repayment under the plan depends on your current monthly income. The applicable commitment period must be three years if your current monthly income is less than the state median for a family of the same size as yours. The plan must offer repayment over five years if your current monthly income is greater than a family of the same size.
You must start making plan payments to the trustee within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court. No later than 45 days after the meeting of creditors, a confirmation hearing will be held to determine whether the plan is feasible and meets the standards for confirmation set forth in the bankruptcy code. Your creditors will receive notice of the hearing and may object to confirmation. While creditors may make a variety of objections, the most frequent ones are that the payments offered under the plan are less than creditors would receive if assets were liquidated in Chapter 7 or that the plan does not commit all projected disposable income for the three to five year commitment period.
If the court confirms the plan, the Chapter 13 trustee will begin to distribute funds to creditors as soon as practicable after they are received. If the court does not confirm the plan, a modified plan can be filed. Alternatively, if the court fails to confirm the plan, the case can be converted to a Chapter 7.
Discharge of Debts
An individual filing for Chapter 13 protection is entitled to a discharge (release of liability) of his/her dischargeable debts upon completion of all payments under the Chapter 13 plan. In other words, creditors that receive either full or partial payment under the Chapter 13 plan may no longer take actions to collect the discharged debts.
The Chapter 13 discharge is broader than the Chapter 7 discharge. Debts dischargeable in Chapter 13, but not in Chapter 7, include debts: (i) arising from property settlements in divorce or separation; and (ii) for willful and malicious injury to property.
Non-Dischargeable Debts in Chapter 13
Generally, the Chapter 13 discharge will release you from all debts provided for by the plan or disallowed, with the exception of certain debts referenced in the Bankruptcy Code, including:
● Alimony or child support obligations
● Certain long term obligations (e.g., mortgage)
● Certain Taxes
● Debts for most government funded or guaranteed educational loans or benefit overpayments
● Debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs
● Debts for restitution or a criminal fine included in a sentence on your conviction of a crime
If these non-dischargeable debts are not fully paid in your Chapter 13 plan, the creditor will be able to collect these debts after the Chapter 13 case has concluded.
Advantages of Chapter 13
Chapter 13 offers individuals many advantages over Chapter 7, including:
● Save Your House or Car when you are behind on payments – Probably the most significant advantage of Chapter 13 is that it offers individuals an opportunity to save their home from foreclosure. In addition to stopping foreclosure proceedings, Chapter 13 allows you to make up any delinquent mortgage payments over the life of the Chapter 13 repayment plan (during the next 36-60 months) rather than immediately.
● Strip off Your Second Mortgage – In some circumstances, you can get rid of or reduce your second mortgage or your Home Equity Line of Credit (HELOC) by filing a Chapter 13 Bankruptcy, which will help you make smaller payments on the house in the future.
● Keep your property that is non-exempt in Chapter 7 – Chapter 13 allows you to keep all of your property, including Chapter 7 non-exempt property, while reorganizing debts and extending the debt over the life of the plan. Doing this may lower your monthly payments.
● Provisions to protect third parties liable with you on “consumer debts.”
● No direct contact with creditors – Since all payments under the Chapter 13 plan are made to the trustee who then distributes payments to creditors, you will have no direct contact with creditors.
● Longer time to Reorganize your Affairs – The automatic stay in Chapter 13 is longer than the Chapter 7 stay and provides you with a greater opportunity to reorganize your financial affairs.
● Repay Child Support – Domestic Support Obligations can be provided for and brought current in the Chapter 13 bankruptcy.
● Penalties associated with Willful and Malicious Injury are Dischargeable – Willful and malicious injury to property is not discharged under Chapter 7 but is subject to discharge in a Chapter 13 bankruptcy.
● Divorce Settlement Obligations are Dischargeable – Non-Domestic Support Obligations are dischargeable under Chapter 13 but not under Chapter 7.
Who is eligible to file for Chapter 13 Protection?
In order to file for Chapter 13 protection, you must have a reliable source of income that you can use to repay a portion of your debts.
Individuals are eligible but Corporations cannot file under Chapter 13
Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as their debts are within certain limits. Corporations, Partnerships, and LLCs may not file for Chapter 13 relief.
The Bankruptcy Code requires that your debts be within certain limits to file for Chapter 13 relief. As of April 1, 2013, the limits were set at $383,175.00 for unsecured debts and $1,149,525 for secured debts. These dollar limits are increased every three years based upon the Consumer Price Index. Accordingly, these limits will be adjusted again in April of 2016.
Effect of Prior Filings on Chapter 13 Eligibility
Chapter 13 relief is available only once in a two year period. If you previously had debts discharged in a Chapter 13 bankruptcy, you must wait at least two years before you are eligible to have new debts discharged by another Chapter 13 filing. However, if you previously had debts discharged in a Chapter 7 bankruptcy, you must wait at least four years before you are eligible to have new debts discharged under Chapter 13.
Additionally, you cannot file a Chapter 13 bankruptcy if you already did so in the previous 180 days and the bankruptcy petition was dismissed, or you failed to appear or comply with the court’s orders, or you dismissed the case voluntarily after your creditors with liens sought the help of the court to recover property (i.e. they sought relief from the stay).
If you are considering seeking bankruptcy protection, the first step you should take is to consult a knowledgeable and experienced bankruptcy attorney. Our Bakersfield bankruptcy lawyers are experienced in handling bankruptcy cases on behalf of individuals, families, and businesses. Call our office today for a Free Consultation. We will review your financial situation, and help you determine whether bankruptcy is the right option for you. If it is, we help you prepare and file all of the appropriate documents, and represent you at the scheduled meetings and court appearances.