CHAPTER 13
Chapter 13 Attorney Ventura, Oxnard
Wrapping Your Head Around Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows you to re-organize your finances. You will be able to keep your assets and property, but in a Chapter 13 bankruptcy, you will create a debt repayment plan that will pay some or all of your outstanding debts over a period of time.
A Chapter 13 bankruptcy must be completed within a prescribed period of time, the minimum being three years, and the maximum being five years. The typical goal in Chapter 13 is to catch up on payments on secured debts, and reduce or discharge the payments on unsecured debts. How much you will have to pay on the unsecured debts is determined by your monthly income/expenses.
What Are The Key Components of Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a type of bankruptcy that allows individuals with regular income to reorganize their debts and repay them over a period of three to five years, instead of liquidating assets as in Chapter 7. It’s designed for people who want to keep their property, such as a home or car, while getting back on track financially.
Here’s a breakdown of how Chapter 13 works:
- Eligibility: To qualify for Chapter 13, you must have a steady income and your debts must fall under certain limits. Specifically, unsecured debts (like credit card debt) should be under $419,275, and secured debts (like mortgages or car loans) should be under $1,257,850 (as of 2023). These limits are adjusted periodically.
- Debt Repayment Plan: The debtor works with a bankruptcy trustee to create a repayment plan that lasts between three and five years. The plan outlines how much the debtor will pay each month toward their debts, based on their income and living expenses. The goal is to repay a portion or all of the debt over the repayment period.
- Automatic Stay: Once you file for Chapter 13, an automatic stay goes into effect, which prevents creditors from pursuing collection actions like lawsuits, wage garnishments, or foreclosure. This gives you a breathing room to reorganize your finances.
- Priority Debts: Some debts must be paid in full, such as alimony, child support, and certain tax debts. These are considered “priority” debts and take precedence in the repayment plan.
- Secured vs. Unsecured Debts:
- Secured Debts: Debts backed by collateral (like a mortgage or car loan) must be included in the plan, and the debtor will continue to make payments. If the debtor is behind on payments, the plan will outline how those arrears will be caught up.
- Unsecured Debts: These are debts not tied to any collateral (like credit card debt or medical bills). In a Chapter 13, the debtor may only be required to pay a portion of these debts, with the remainder being discharged after the plan is completed.
- Discharge: After completing the repayment plan, any remaining eligible unsecured debts are discharged, meaning the debtor is no longer legally required to pay them. However, not all debts are dischargeable (for example, student loans or certain taxes).
- Advantages:
- The ability to keep your property (e.g., home or car).
- Protection from creditor actions through the automatic stay.
- More manageable repayment schedule based on income.
- Disadvantages:
- It requires you to commit to a long-term repayment plan (typically 3-5 years).
- Not all debts can be discharged, and the debtor must still adhere to the repayment schedule.
- It may be more difficult to qualify if your income and debts exceed the eligibility limits.
Chapter 13 can be a good option for people who want to avoid foreclosure, catch up on missed payments, or have a regular income but are overwhelmed by their debts. It allows them to reorganize and ultimately get a fresh start.
Understanding The Chapter 13 Process
A Chapter 13 bankruptcy is significantly more complex than a Chapter 7 bankruptcy. To completely understand how it works, you should get in touch with an experience bankruptcy attorney so that he or she may evaluate your current financial situation. The consultation is usually free of charge, and should you decide to move forward, you will pay be quoted an amount for the attorney fees. You should also be aware that the Bankruptcy Court charges a filing fee of $313 for a Chapter 13 bankruptcy.
When you file, you will need to provide the Bankruptcy Court detailed information about your financial situation, including:
- A list of all property that you own, in addition to all contracts and leases that are in your name
- A list of all your creditors, their addresses, and the amounts they claim you owe
- The amount and sources of your income
- A breakdown of your monthly living expenses
- Tax information including a recent copy of your most recently filed tax return
Act Diligently Before Chapter 13 Filing
Prior to filing a Chapter 13 bankruptcy, you must complete a credit counseling course from an approved agency within 180 days of filing your petition. You must also declare that you do not have any other pending bankruptcy case, and that no bankruptcy petition has been dismissed in the previous 180 days prior to filing.
Business Entities And Chapter 13 Bankruptcy
If you own a business, you may certainly file a Chapter 13 bankruptcy, but the business itself may not file under Chapter 13. Only individuals and their spouses in the case of a joint bankruptcy may file under Chapter 13. If you are looking to bankrupt a corporation or business, you are limited to filing Chapter 7 or Chapter 11 instead.
What About Your Prior Bankruptcy?
You will not be eligible for a discharge under Chapter 13 if the following apply to you:
- You’ve received a discharge in a Chapter 13 bankruptcy within the last 2 years
- You’ve received a discharge in a Chapter 7 bankruptcy within the last 4 years
- If any previous bankruptcy case in your name was dismissed within 180 days (with exceptions)
However, in certain limited situations, Chapter 13 may still be of some assistance.
Income Tax And Chapter 13 Bankruptcy
Taxes that are over three years old from the time they became due may, depending upon the circumstances, be classified as non-priority claims and may be reduced or discharged like any other debt. Those that are not over three years old will be considered priority claims, and these MUST be paid in full through your Chapter 13 plan. In addition, if your Chapter 13 is not paying 100% of what is owed to your creditors, the Chapter 13 may require you to turn over any tax refunds you may be entitled to.
Call An Experienced Bankruptcy Attorney!
As can be seen, Chapter 13 bankruptcy is by no means simple; the information above is general in nature and is by no means a complete explanation of the Chapter 13 process. Hopefully it has provided you some insight as to how it all works, but this is not something you want to experiment with on your own. Call an experienced bankruptcy attorney who is familiar with Chapter 13. In that way, you will get the fresh start you deserve and are entitled to.
