Chapter 13 Bankruptcy
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.
Filing bankruptcy under Chapter 13 is for people who have some discretionary income. 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 created for the chapter 13 debtor. Payments must be 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.
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.”
Chapter 13 was intended to give the wage earner a reasonable opportunity to arrange installment payments. This comes out of future income so that creditors would receive more money than they otherwise would receive in liquidation. The good new is there is no liquidation in Chapter 13. 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.
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.
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 are interested in anything that changes the formula of your confirmed plan. This is why the Chapter 13 trustee will be interested in your tax returns, and any tax refund.
Summing up Chapter 13 Bankruptcy
All in all,Chapter 13 bankruptcy is 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 hundreds of our neighbors file Chapter 13 bankruptcy. We’d be honored if you’d let us help you too.
Contact a skilled, experienced, affordable Chapter 13 bankruptcy lawyer now