What does Chapter 13 mean?
A Chapter 13 bankruptcy is a reorganization of your debt. Most people may call it a payment plan. There are many different reasons why Chapter 13 might be your best option. It’s important that we talk about your specific situation and analyze your options before moving forward with any type of bankruptcy. We need to look at your entire situation: the type of debt you have, your household income and your goals in bankruptcy, in order to determine whether it would be the right solution for you.
Chapter 13 cases typically last 5 years, depending on the type of debt and income. Based on your budget, we will propose a payment plan to the court. It’s very important that we go over your budget carefully and propose something that you can live with for the period of time that you are in bankruptcy. Fortunately, our vast experience in the Chapter 13 area allows us to be familiar with the budgeting process and, that way, we come up with something that will be both acceptable to you and the court.
Once we present a plan that we believe to be both feasible and one that shows your best efforts, we present this plan to the court and Chapter 13 Trustee. It is the Trustee’s role to ensure that you are trying your best to pay off your debt and that your creditors are being treated fairly. It’s our relationships with the court, based on years of experience, that creates smooth sailing through this process.
You may ask why you would want to file? Your friend may have finished his or her bankruptcy in only a few months, and we’re telling you that you could be in bankruptcy for three to five years! Why would you want to do that? There are many reasons, the following are just a few:
Kinds of debt – There are many different kinds of debt that may not be dischargeable in a Chapter 7, debt that still leaves you feeling overwhelmed but that you just don’t have the money to pay out of pocket. Examples of this are back mortgage payments or recent income taxes. A Chapter 13 gives you some breathing room and lets us come up with a plan to get caught up on all that debt. During this process you have some peace of mind. We represent you and become your advocate, ensuring that you can get all of your debt paid off in a 3-5 year period without harassment.
Lien Stripping– It cannot be stressed enough that a lien strip is only available as part of a Chapter 13 bankruptcy. You have to enter into a payment plan in order to strip off your second mortgage.
Income– Sometimes you make simply too much money to file a Chapter 7. Chapter 7 cases have various income tests that you would have to pass in order to qualify. Chapter 13 cases aren’t like that. From an income standpoint, there is no qualifying for a Chapter 13. We just have to create a budget where you propose to pay back your debt in a way that is fair to your creditors. Sometimes that means paying back a bigger portion of their debt, sometimes it means you barely pay off any of your debt. Fortunately, Chapter 13 budgets exist in the real world, where we can count your insurance, your taxes, your child care etc. in order to form a realistic budget to create a plan where everyone is fairly treated.
Assets– Many of our clients come to us and they are scared that if they filed bankruptcy, they could lose their home, their car, their savings etc. We carefully analyze whether your assets can be fully protected in a Chapter 7, assuming you qualify. Sometimes we are not certain everything you have can be fully protected. A Chapter 13 is a much safer route when you have many assets at stake. Chapter 13 Trustees don’t sell anything! Nothing is at risk for sale. For that reason alone, a Chapter 13 is a preferred option for clients who have too much to risk in a Chapter 7.
Is this the right path for me?
A: There are a number of factors that go into deciding whether Chapter 13 is right for you.
First, it becomes a clear option if you do not qualify for Chapter 7 bankruptcy based on your income or you have debts that will not go away in a Chapter 7.
This avenue also makes sense if you are a homeowner who is looking to keep your home but need to make up arrearages or want to get rid of your 2nd mortgage, or both.
The Chapter 13 process typically lasts 5 years. It requires you to pay your monthly disposable income to your creditors. We are able to carve out plenty of living expenses from this payment, however sometimes new expenses arise, and we would need to get court approval to change those payments.
Chapter 13 can also be very rewarding because it is the surest way to save your home if you are falling behind on payments and possibly facing foreclosure.
Q: What is the process?
A: As mentioned above, after we get your case filed, we will help you through a 3 to 5 year process that involves monthly payments to your creditors.
Q: What if something happens to me financially during my case?
A: This is why it’s crucial you come to us and feel comfortable communicating with us. We understand that in three years things happen. You could lose your job, you could transfer, or hey, you could win the lottery! There are always solutions and options during your Chapter 13 case. We have the knowledge to guide you through anything that comes up (unless you win the lottery, you’ve probably given that one some thought on your own!).
Q: Where does my money go in the payment plan?
A: The payment that you make each month goes to the Chapter 13 Trustee. The Trustee then distributes it to your creditors. This payment usually only adds up to a small percentage of what you owe, and at the end, any outstanding debt is discharged, so you save a significant amount of money by going through the process.
Q: Can I keep my car?
A: Yes, as long as you continue to pay for it. Many people include their car in their case, which allows you to make your car payment to the Trustee, who in turn deals with your car lender. Others pay their car outside the plan. It’s up to you but we will probably have some guidance about how to handle that decision during your free consultation.
Q: Q: Do you service my location?
A: We service all of California, with our headquarters in the San Fernando Valley.
If it is not convenient to visit one of our offices, we can handle your entire case by phone and email! Please give our office a call for a free consultation.