Chapter 13

The United States Bankruptcy Courts allow individuals under different earning potentials and debts to apply for bankruptcy. There are many types of bankruptcy chapters that allow certain individuals to apply for various forms of relief. For instance, you may have your medical and credit card debt completely discharged when you apply for a Chapter 7. In Chapter 7, the debtor will give his property to a U.S trustee who will be in charge of selling the property and distributing the earnings amongst the creditors. If there is a surplus, meaning that every debtor was paid off, the trustee will cut you a check for the remaining portion. If you think a liquidation of your assets is the best option for your case, you will want to discuss your interest with a bankruptcy attorney. A Chapter 7 bankruptcy is a short procedure that usually results in the discharge of the debtor's debt.

Upon completion of a means test, the court will decide if you qualify for a liquidation of assets through Chapter 7. Individuals who do not qualify may consider filing through a Chapter 13. Chapter 13 is a bankruptcy proceeding that results in the discharge of certain debts. When a debtor is unable to discharge their debts through a Chapter 7, they may choose to file a Chapter 13. Unlike Chapter 7, Chapter 13 allows debtors to reorganize their debt through a 3 to 5-year repayment program.  Upon completion of the repayment program, the dischargeable debt is wiped out. Debts that can be discharged after a repayment program include but are not limited to medical bills, payday loans, and credit card debts.

Chapter 7 is a procedure that is only available to certain people. In addition, not everyone wants to liquidate their property to pay off debt. Individuals with high earning potentials may not always be capable of applying for a Chapter 7 and they may not want to get rid of their property such as their home, vehicle, and other assets. When a debtor wants to keep their property they will want to file a Chapter 13 which allows the debtor to establish a repayment program where some debt will be paid back and other debt will be discharged.

In order to qualify for a Chapter 13, you must a) not owe more than $394,725 in unsecured debts such as personal loans and credit card debt that exceeds or b) owe more than $1,184,200 in secured debts such as debts from home or vehicle loans. In addition, brokers, businesses, corporations, and other large entities may not apply for a Chapter 13. Much like Chapter 7, Chapter 13 allows single, married, and sole business proprietors, to file this type of bankruptcy.

If you are considering a Chapter 13, you will need to prepare financial statement documents that should include all of your financial affairs. In these statements, you will have to include all information pertaining to your types of debts, your salary, your expenditures and other information that needs to be truthful and accurate. When you file for a bankruptcy, you want to make sure that all of your information is as accurate as can be in order to reduce the possibility of a lawsuit. If you lie or misinform the bankruptcy court, the creditors may pursue a lawsuit if they are able to prove that you intentionally hid certain information. To make sure that your documents are filed correctly the first time, you will want to speak with an experienced bankruptcy attorney.

An experienced bankruptcy attorney is capable of applying both state and federal laws to your case. Since a bankruptcy is a federal matter it is easy to assume that all bankruptcy cases are handled the same across state borders. Make sure you contact a local attorney who is knowledgeable about state law. If you are in the state of California, you will be required to file bankruptcy using the local bankruptcy laws. If you want to file a bankruptcy, you are encouraged to speak with the Bankruptcy Attorney at 424-285-5525. Our bankruptcy attorney will help you decide what bankruptcy chapter works best for you. In some cases, you may be capable of keeping more property than you think is possible.

The Benefits of Chapter 13

A Chapter 13 may be a longer process than a Chapter 7, but as you will see there are many benefits in filing a Chapter 13 bankruptcy. First and foremost, you will consider a Chapter 13 over a Chapter 7 if you have a high earning potential. If you have earning potentials, you may not want to liquidate all of your belongings. Instead, you may want to keep your items and establish a repayment program that works for you. Often times, debtors are making on-time payments, but are living paycheck to paycheck. A Chapter 13 will allow these individuals to consolidate their debt which means they will have lower monthly payments. A Chapter 13 may allow an individual living pay check to pay check to save some money. Chapter 13 holds a variety of benefits including the following:

You get to keep your property

When you file for a Chapter 13, your creditors can no longer pursue a lawsuit and may no longer proceed with a foreclosure or repossession. Under the Automatic Stay laws, any debt collecting activity is unlawful after a debtor files for a bankruptcy. This means that you get to keep your property and negotiate the type of debt you will repay through a repayment program. After filing a Chapter 13, the debtor is able to establish a three to five-year repayment program to pay back any debt that they may owe to their mortgage. In addition, the debtor is capable of keeping their property and selling any property they may not need to help pay off the debt. Unlike a total liquidation of assets and properties, Chapter 13 gives the debtor the option to choose what property may be sold to pay off debt. In some cases, you may choose to keep all of your assets and stick with a repayment program.

Chapter 13 is reflected on your credit history for a shorter time

Chapter 13 appears on your credit history for 7 years while a Chapter 7 will appear on your credit history for ten years. Creditors will be more likely to lend you money after a Chapter 13 than if you were to file a Chapter 7. Chapter 13 shows the debtors will to pay back debt making it easier for them to later apply for another credit line.

Discharge your debt through a repayment program

Both Chapter 13 and Chapter 7 provide a discharge for unsecured debt. Unsecured debts are debts with no collateral meaning that there is no real property backing the loan such as a house or a car. These types of debts usually include credit card debt, personal loans, and medical bills. When you file a Chapter 7 or a Chapter 13, dischargeable debts are wiped out and you will not be required to pay back the debt. Chapter 13 differs in that in your repayment program you must include some form of payment to your creditors. However, at the end of the repayment program, the dischargeable debt is discharged. Unlike with Chapter 7 where the debt is discharged after 6 months, through a Chapter 13, the debtor must undergo a 3 to 5-year repayment program before any debt is discharged.

IRS Taxes

If you owe money to the IRS, you must have already heard that it is impossible to have this type of debt discharged. However, when you file for bankruptcy you may have some tax debts discharged and reorganized. Penalties that arise from failure to pay tax debts can be discharged as unsecured debts. This means that even though a Chapter 13 may not wipe out tax debt, it may help you clear some of the penalties that you accumulated. In addition, you may be able to including the tax debt into your repayment program.

Do I qualify for a Chapter 13?

Almost anyone can apply for a Chapter 13, however, you must owe less than $394,725 in unsecured and less than $1,184,200 in secured debt to qualify. As mentioned earlier, businesses and large entities such as limited liability corporations, municipalities, and school districts, may not apply to this form of relief. In order to apply for a Chapter 13, you must be a debtor that is applying with their spouse or a single entity that is taking care of their personal debts.

When you apply for a Chapter 13 bankruptcy, you will also want to consider your bankruptcy history. If you filed a Chapter 13 within the last two years you may not be capable of filing a Chapter 13. In addition, if you filed a Chapter 7, you must wait six years to file a Chapter 13. Furthermore, you may not file for bankruptcy 180 days after a bankruptcy case was dismissed. Your bankruptcy case can be dismissed at will and/or dismissed for failure to follow court procedures such as not attending the creditors meeting. Speak with a local attorney before filing a Chapter 13 to ensure that you qualify for this form of relief. In some cases, individuals that do not qualify for a Chapter 13 may qualify for a Chapter 11. To learn more about Chapter 13 eligibility, you may visit the United States Courts page

How do I file a Chapter 13?

To file bankruptcy under a Chapter 13, the debtor will be required to submit their petition to a courtroom along with a couple of documents. The documents that need to be submitted should include a) a schedule of assets and liabilities, b) a schedule of ongoing leases and contracts, c) a statement of income and expenditures, d) certificate of completion of a credit counseling e) a copy of your repayment program (the repayment program should be developed during the credit counseling) f) a statement of financial affairs . 

The complete bankruptcy petition will include a list of the debtor's property and assets, a detailed description of the debtor's expenses, the debtor's income, and a list of the creditors and their claims. If you are filing while married, you will have to include your spouse's financial information even if they choose not to file a bankruptcy. In a bankruptcy, the court will take into account the financial state of the household.

The Role of a Trustee in Chapter 13

After you successfully submit the documents mentioned above, you will be appointed a bankruptcy administrator or a United States bankruptcy trustee. A trustee is a judicial officer that acts as the middleman between the creditor and the debtor. Upon receiving a bankruptcy petition, the trustee is in charge of informing your debtors of your bankruptcy petition and of the automatic stay laws that protect the debtor from any debt collecting activity. In addition, the trustee in a Chapter 13 bankruptcy is in charge of making receiving and making payments to your creditors. The trustee will make sure that your payments are distributed to meet the demands of your repayment program.

Creditors Meeting

Your court-appointed bankruptcy trustee will also notify your creditors of the creditors meeting. The trustee will hold a creditors meeting where the debtor will be placed under oath and will be required to answer any questions that the creditors may have. The debtor is required to attend this meeting, failure to attend may result in the dismissal of the bankruptcy case. If the court dismisses your bankruptcy case for failure to adhere to bankruptcy court procedures, you will not be capable of filing a bankruptcy for 180 days after the date you initially filed your petition.

No later than 45 days of your creditors meeting the court will make a decision on your petition. If the court accepts your claim, the trustee will begin making payments to the creditors as stated on your repayment program. On the other hand, if the court rejects your repayment program, you will have a chance to modify the document. If you wish to speak with an attorney about your bankruptcy case, you are encouraged to contact the Bankruptcy Attorney at 424-285-5525.