Chapter 13 Bankruptcy Basics From Our Santa Rosa and Napa Bankruptcy Attorney

Photo of chapter 13 bankruptcyWhat is a Chapter 13 Bankruptcy?

Chapter 13, also known as a “payment plan” bankruptcy, may be available to those individuals who are employed or are small business owners, or who have a regular source of income such as a pension, and have the ability to pay some or all of their debt over a period of three to five years. Unlike a Chapter 7 bankruptcy, your assets are not liquidated. Instead, you would pay a monthly payment to a Chapter 13 trustee. The Chapter 13 trustee disburses the funds to your creditors.

Why is Chapter 13 Bankruptcy a Good Solution?

  • A Chapter 13 will immediately stop all collection activity against you, including harassing telephone calls and letters, lawsuits, bank levies, most wage garnishments, repossessions and foreclosures.
  • A Chapter 13 will allow you to consolidate most of your debt into one monthly payment. In some situations, you will not be required to pay certain debts in full. You will be granted a discharge for debts that you are not required to pay in your Chapter 13 upon completion of your Chapter 13 payment plan. A discharge is a court order that says you do not have to repay your debt. You will also be required to pay to the Chapter 13 trustee your disposable income; that is, income over and above your living expenses. The Chapter 13 trustee will disburse the funds to your creditors.
  • You must pay your creditors a sum equal to the value of your non-exempt assets. Non-exempt assets are assets that you would not be entitled to keep if you had filed a Chapter 7. You are entitled to keep all of your non-exempt assets in a Chapter 13.
  • In a Chapter 13, you must pay certain debts in full over the term of the payment plan. Such debts include most child support arrearages and certain income taxes.
  • A Chapter 13 allows you to stop foreclosure proceedings and to retain your home by repaying home loan arrearages over a three- to five-year period.
  • Lien stripping is available in a Chapter 13. If your home is worth less than the balance owing on your first deed of trust (or mortgage) in a Chapter 13 you may “strip off” (eliminate) a second deed of trust (or mortgage or home equity line of credit). The second loan is treated as an unsecured debt like a credit card debt. You may be required to pay little if anything to the second deed of trust (or mortgage or home equity line of credit).
  • A Chapter 13 enables you to stop your vehicle from being repossessed if you are behind in your vehicle loan payments. Whether you are current or behind you may pay your vehicle loan through the Chapter 13. You may be able to reduce the monthly vehicle loan payment, interest rate and/or loan balance.

When is Chapter 13 Bankruptcy Not Helpful?

  • Not all debts can be discharged in a Chapter 13. Debts you cannot discharge in a Chapter 13 and that you will still be responsible to pay include recent taxes, student loans, domestic support, criminal fines and restitution obligations, certain debts for personal injury and debts incurred fraudulently or by theft.
  • A Chapter 13 payment plan cannot modify the terms of your first deed of trust (or mortgage) secured against your home.
  • With the exception of lien stripping, if you owe money against your home, vehicle or furniture, a Chapter 13 will not allow you to retain these items unless you continue to make payments on the loans securing these items.

Am I Eligible for a Chapter 13 Bankruptcy?

  • Only people may file a Chapter 13 bankruptcy; corporations, partnerships or LLCs are not eligible to file Chapter 13.
  • You must have no more than $394,725.00 in unsecured debt and $1,184,200 in secured debt.
  • You must have some kind of regular source of monthly income. Income may include wages, commissions, retirement benefits, disability or unemployment compensation.
  • Most importantly, you must have a monthly budget that works for you. You must have sufficient income to not only pay your regular monthly living expenses such as utilities and food, but also to pay the Chapter 13 plan payment for three to five years.

Your Financial Situation is Unique. Contact Santa Rosa and Napa Bankruptcy Attorney Ellyn M. Lazar Today to Schedule a Free Confidential Consultation.

Napa and Santa Rosa bankruptcy lawyer Ellyn M. Lazar has been helping individuals and small businesses file Chapter 13 bankruptcy for nearly 30 years, and she can answer your bankruptcy questions during a free confidential consultation.

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