Chapter 13 Bankruptcy – the Ultimate Guide
Chapter 13 bankruptcy is like debt consolidation, but better. It’s a solution for people who have some money to pay some of their debts back, but not all. Or to pay all, but only the minimums. In five years from now, paying minimums on all your debt, if you could afford to, means you’ll still have all your debt. Or most of it. It’s because of that darned interest, and you’re barely paying principle. Chapter 13 fixes that.
What is Chapter 13
Filing bankruptcy under Chapter 13 is for people who have some discretionary income. With this extra money each month, the consumer bankruptcy debtor can repay some or all of their debts.
Discretionary income is money left after their normal and usual monthly expense are deducted from monthly income. For this reason, a Chapter 13 is called a “Wage Earner Bankruptcy” The focus is having money to repay debts, which we call “budget surplus.”
60 Monthly Payments
The big difference between Chapter 7 bankruptcy and bankruptcy chapter 13 is that there are monthly payment plans for the chapter 13 debtor. Payments are made to the Chapter 13 Trustee over a period of (usually) 5 years.
What are these payments? These payments are usually to firstly, tax debt. Secondly, they go to whatever you may be behind on your mortgage payment, or sometimes your car loans. Finally, they’ll go to pay some or all of your credit card debt. Chapter 13 bankruptcy therefore is a good way to stop foreclosure and save your house, as well as stop creditor harassment. And of course, all the California bankruptcy exemptions still apply, so you can keep your stuff.
Chapter 13 was intended to give the person with income a chance to make affordable installment payments. This comes out of future income so that creditors get paid at least something. The good new for you is that there is no liquidation in Chapter 13. The Chapter 13 bankruptcy trustee doesn’t take things. Generally, you keep your stuff.
You’re going to want a skilled Los Angeles bankruptcy attorney to help you so you can make your payment plan no more than you can afford for your Chapter 13.
The Stuffy Definition: Wage Earner Bankruptcy
Chapter 13 of the Bankruptcy Code lets debtors under Court protection apply a portion of future earnings to the repaying some or all their debts over time. Creditors can’t do anything during this time to collect the debts. The automatic stay protects the debtor while a plan of repayment is carried out. It is similar to a Chapter 11 Business Reorganization. In fact, Chapter 13 is sometimes called “Consumer Debt Adjustment.”
Consumer Chapter 13 Bankruptcy Overview
You currently have enough extra money at the end of the month to pay your credit card minimum payments. This, of course, is getting you nowhere. You’ll have the same debt in 8 years, and will still be paying $700 or $1000 or whatever it is each month… forever. There’s a way to eliminate debts on your terms, like debt consolidation.
Or you’re behind in your mortgage payments, and want to keep your home. And you have extra money each month you’d like to use to catch up, but the mortgage company won’t work with you. This is one advantage of Chapter 13 over other types of bankruptcies.
In either situation, you can take that money you have left at the end of the month and start reducing the debt you owe so that you’re out of debt in 60 months.
Chapter 13 Bankruptcy Process
The process for filing Chapter 13 is a maze-like process, and you will want to have an attorney by your side. The paperwork involved is truly overwhelming, and the time is much greater than a Chapter 7 bankruptcy.
Preparing the Petition and Plan
Like any bankruptcy case, you will need to have a bankruptcy petition for the court. This is often 30-50 pages thick and lists your debts, possessions and other information in a very particular order and fashion.
The payment plan is the key to a Chapter 13 bankruptcy, and what sets it apart from a Chapter 7 bankruptcy. It sets out all the ways which the debt will be handled during the administration of the bankruptcy by the Chapter 13 Trustee. How much unsecured debt will be paid? Are you going to keep paying on the car, or give it back for a voluntary repossession? What about the mortgage: will it be caught up if you’re behind to avoid foreclosure, or if so, how long will it take to pay the arrearages that you’re behind?
In short, a lot of precise and important calculations go into the Payment Plan with the aim of determining the number that matters most to the debtor. This number, of course, is the monthly payment. You’ll pay this monthly payment for 60 months (yes, that’s 5 years). By definition, you’ll be able to afford it. An good bankruptcy attorney ensure you can make the payment, but also something that can be accepted by the bankruptcy trustee and creditors.
Filing the Bankruptcy Papers
After these are ready, the bankruptcy petition and payment plan are submitted to the U.S. Bankruptcy Court. The papers are filed and the case gets a number and the ball is rolling.
The Meeting of Creditors (341A)
Like a Chapter 7 bankruptcy, you must go under oath with penalty of perjury regarding the facts that are contained in your bankruptcy petition. You will need to appear in bankruptcy court to answer some brief questions. This is the 341(a) Meeting of Creditors.
After the bankruptcy court date, your attorney will need to return to court. This involves making sure that the numbers all add up, your chapter 13 payment plan is fair to both you and your creditors, and of course, to accept your next monthly payment. If all goes right, your plan will be “confirmed,” your plan is accepted and everything is on automatic pilot.
After Bankruptcy Court
After confirmation, from this point forward, you will just mail your monthly payments to the chapter 13 trustee. There usually are a couple of restrictions, such as notifying the trustee if you get a change in your income. Further, you’re not to get more than $500 on any future debt without permission. Something to remember: any extra money above and beyond your normal monthly expenses goes to the bankruptcy for debt. Consequently, the bankruptcy court and trustee follow anything that changes the formula of your confirmed plan. This is why the Chapter 13 trustee needs to see your tax returns, and gets any tax refund.
Why do I need a Chapter 13 bankruptcy lawyer
Chapter 13 bankruptcy cases are ones in which it is hard to be successful. Judge Johnson of the Central District of California (where Los Angeles is situated) has researched the topic. In his standing order, Judge Johnson finds that nationally, only 33% of Chapter 13 cases succeed. Locally, however, it’s much more rare. The judge finds that in the Central District of CA, only 3% of Chapter 13 bankruptcy cases succeed. He also found that this number drops to 0% when there’s not a bankruptcy attorney helping the debtor.
CDCA Low Chapter 13 Success Rates
Quoting the bankruptcy judge:
“A review of the Court’s records a few years ago indicated that only 3% of Chapter 13 cases in this district resulted in a completed plan with Chapter 13 debtors making all plan payments.”
That’s not a typo: 3%.
There’s no doubt that Chapter 13 bankruptcy is difficult to learn and navigate for the Los Angeles bankruptcy filer. Anyone who wanted to do one would need a bankruptcy lawyer to even out the odds of success. You’d want a bankruptcy attorney who had experience with Chapter 13. Not just experience, but success with these challenges.
Los Angeles bankruptcy attorney Hale Antico has Chapter 13 success
Bankruptcy filing statistics show that from 2008 to 2012 there was a peak of Chapter 13 filings.
Between 1/1/2008 and 12/31/2012, Los Angeles bankruptcy attorney Hale Antico filed 189 Chapter 13 cases.
Successful cases take 5 years to earn a discharge; unsuccessful cases end sooner.
Between 12/31/2013 and 12/31/2017, there were 132 of these earlier Chapter 13 bankruptcy cases which received discharges.
132 divided by 189 is 70%.
Or viewed differently:
Chapter 13 Bankruptcy Success Rates
Chapter 13 Success Rates
The stats say you need an attorney for Chapter 13 bankruptcy. But not just any 3% successful bankruptcy lawyer. It would be a good move to go with one of the best bankruptcy attorneys whose success rate is double the national average, and over 20 times higher than the local success rate.
Summing up Chapter 13 Bankruptcy
All in all, Chapter 13 bankruptcy is a successful debt consolidation where you pay a fixed payment for a fixed term. Everything after the term that didn’t get paid is discharged. Filing it freezes interest. Creditors can’t sue you. You just pay back what you can. This is often cheaper than what you’re currently paying all those minimum payments combined before the bankruptcy. Why? Because without bankruptcy all those minimums only go to interest. Chapter 13 bankruptcy works to get you out of debt.
We’ve helped thousands of people in Los Angeles file bankruptcy. We’d be honored if you’d let us put our success to work to help you, too.