Chapter 13 Bankruptcy
Riverside Bankruptcy Attorney
What is a Chapter 13 Bankruptcy?
A Chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this Chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. During this time the law forbids creditors from starting or continuing collection efforts.
Due to the complexity of Chapter 13 discharge debtors should consult knowledgeable legal counsel prior to filing.
A Chapter 13 debtor is entitled to a discharge upon completion of all payments under the Chapter 13 plan so long as the debtor: (1) certifies (if applicable) that all domestic support obligations that came due prior to making such certification have been paid; (2) has not received a discharge in a prior case filed within a certain time frame (two years for prior Chapter 13 cases and four years for prior Chapter 7, 11 and 12 cases); and (3) has completed an approved course in financial management
The court will not enter the discharge until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor’s homestead exemption
Advantages of Chapter 13
There are a many advantages for individuals filing Chapter 13 instead of liquidation under Chapter 7.
Most importantly, Chapter 13 offers individuals an opportunity to save their homes from foreclosure by stopping foreclosure proceedings, which may be a cure for delinquent mortgage payments. Nonetheless, you must still make all mortgage payments that come due during the Chapter 13 plan on time.
Another advantage is that a Chapter 13 filing allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the Chapter 13 plan. Doing this may lower the payments.
Lastly, Chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a Chapter 13 trustee who then distributes payments to creditors. While under Chapter 13 protection individuals will have no direct contact with creditors.
The Chapter 13 Hardship Discharge
In situations where an unknown circumstance occurs preventing the debtor from completing the plan the debtor can ask the courts to grant a hardship discharge. This type of discharge is available only if the following conditions are met:
(1) the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor; (2) creditors have received at least as much as they would have received in a Chapter 7 liquidation case; and (3) modification of the plan is not possible.
Injury or illness that prevents employment sufficient to fund a modified plan may serve as the basis for a hardship discharge.
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