Owing money to creditors, being behind on bills, and generally feeling stressed out because of finances can be overwhelming. Many who think about bankruptcy believe they have one option: liquidate all assets. This is not the case, especially for those who have the income to repay their debts but need more time. Chapter 13 bankruptcy, sometimes referred to as wage earners’ bankruptcy, offers a way out of financial ruin without liquidating all of your assets.
Below, we offer specific information to answer some questions you might have about Chapter 13 bankruptcy. Contact The Law Offices of Susan J. Wolf for a free consultation to learn more about Chapter 13 and other options you might have to relieve your debt.
Chapter 13 Bankruptcy May Be the Best Options for You:
- You don’t qualify for a Chapter 7 Bankruptcy
- You are Behind on Your Mortgage Payments
- Pay Your Back Taxes Owed to the IRS or State
- Feasible Monthly Payment Plan to Discharge Your Debts
How Does Chapter 13 Bankruptcy Work?
The easiest way to think about Chapter 13 Bankruptcy is as a reorganization of your unsecured debt. Chapter 7 Bankruptcy results in the discharge of debt, but when you file Chapter 13, you create a repayment plan and typically make payments for three to five years. No bankruptcy will completely eliminate all your debt because some things are not dischargeable, like alimony, child support, federal student loans, and back taxes. Yet, filing Chapter 13 Bankruptcy and submitting a reorganization plan allows many to avoid repossession of assets and foreclosure.
Eligibility to File Chapter 13 Bankruptcy
According to the United States Bankruptcy Code, individuals who have unsecured debts totaling less than $419,275 and secured debts less than $1,257,850 can file for relief under Chapter 13. The government periodically adjusts these amounts to reflect changes in the consumer price index. Although courts sometimes make exceptions in emergency situations, the following situations will typically disqualify you:
- Businesses, corporations, and sole proprietorships cannot file Chapter 13; however, you can file if you are self-employed.
- Debtors who had a previous bankruptcy petition dismissed in the previous six months because they didn’t appear in court comply with court orders are not eligible.
- Debtors who have not received credit counseling from an approved organization within the previous six months cannot file. Debtors must file any plan they created during credit counseling with the court.
Chapter 13 Filing Process
If you file Chapter 13 Bankruptcy to reorganize your debt, your lawyer will guide you through the process. Yet, you should have a broad understanding of what happens. Below we outline the major elements of the filing process:
- File a petition with the bankruptcy court where you live, which typically also include providing these things:
- A list of all your creditors, the amounts you owe them, and the type of claim;
- A list of your income sources including the amount you are paid and how often;
- A list of all your personal property; and
- A list of your monthly living expenses including food, shelter, clothing, utilities, transportation costs, medicine, taxes, etc.
- After you file your petition, the court appoints an impartial trustee to administer the case. He or she evaluates your bankruptcy case, collects payments from you, and distributes them to your creditors. Your creditors will also receive notice of your bankruptcy, so they cannot demand payments, garnish your wages, or sue you for payment.
- Once you file bankruptcy with the help of a skilled attorney, an “automatic stay” goes into effect. This requires your creditors to stop all collections and lawsuits and banks and mortgage companies must stop any foreclosure proceedings.
- If you did not include your repayment plan with your petition, you must file it within two weeks.
- You must begin to make payments to your trustee within 30 days of filing your petition, even if the court hasn’t approved your plan.
- After three weeks, but before 60 days, your trustee will hold convene a meeting for you and your creditors, where he or she will place you under oath and allow them to ask questions about your financial affairs and your proposed repayment plan.
- You attend your scheduled hearing after the meeting of creditors.
Life Under a Chapter 13 Repayment Plan
At your hearing, the court will confirm your repayment plan and it is your responsibility to adhere to the plan. Typically, you can make payments directly to your trustee, or you can have payments deducted from your payroll. If you fail to make your payments on time and follow your court-approved repayment plan, you risk the court dismissing your case or forcing you to liquidate your assets under Chapter 7. You cannot incur any new debt unless you have approval from your trustee.
Once you have completed your payments, you are entitled to a discharge. Keep in mind that Chapter 13 discharges are complex and your attorney will need to guide you. Typically, you must meet the following requirements for a Chapter 13 discharge:
- You must certify that you have paid all domestic support obligations.
- You must not have had a Chapter 13 discharge within two years, Chapter 7, 11, or 12 discharge within four years.
- You must complete an approved financial management course as advised by your trustee.
- The court must determine that you have no pending proceedings against you.
A discharge releases you from your debt according to your payment plan with some exceptions like long-term obligations such as mortgages, child support, alimony, certain taxes, government-funded student loans, and any debts related to criminal activity, fines, or court-ordered restitution. Chapter 13 does, however, allow you to discharge debts for property damage you caused, debts you incurred to pay taxes, and debts related to property settlements in divorce proceedings.
Contact The Law Offices of Susan J. Wolf Today for Legal Advice on Debt Relief
Dealing with debt can be a daunting task and an experienced bankruptcy lawyer can help you find the right path for debt relief. The skilled legal team at The Law Offices of Susan J. Wolf proudly serves clients in Southern California from their main in office in Canoga Park, and additional locations in Palm Desert to serve the Coachella Valley, Oak Park, Ventura County, and Riverside County. Contact us today at (818) 992-1182 or (760) 285-8225 to discuss your financials and learn how we can help you reduce and eliminate your debt.