California Bankruptcy: Chapter 13 Basics

If you are facing foreclosure, another option that you can pursue is filing for Chapter 13 bankruptcy – also known as the “wage earner’s plan.” Unlike Chapter 7, which involves liquidation, this chapter instead focuses on “reorganization”. Similar to Chapter 7, however, is that once you have filed a petition for this chapter, an automatic stay will be put into place which will freeze, stop and delay any foreclosure proceedings.

You can then move forward into the “reorganization” chapter. Under this chapter, the debtor is able to come up with a new plan which would permit them to repay all of their debts over a three to five year time period. This window of time would severely restrict the actions of any creditors – they are not permitted to pursue any form of collection, cannot contact you and are not permitted to pursue a lawsuit.

While eligibility is less stringent than it is with Chapter 7, there are still certain qualifications that must be met. Namely, the debtor must have a regular income that shows that they can realistically pay off their debts – this includes those who are self-employed and those who run an unincorporated business. Put simply, you are permitted to file for Chapter 13 if the following applies to you:

  • You have less than $360,475 in unsecured debt; and
  • You have less than $1,081,400 in secured debt.

These debt limits can create a problem for California homeowners with moderately large mortgages. A Debtor can work around the limits if the debts are “disputed” or a Chapter 11 can be filed instead.

Beyond that, it is required that the debtor has received some form of credit counseling within 180 days before filing. Should you be eligible for this chapter, there are several different benefits which you can experience. For example, you will be given the breathing room that you need to pay off any and all mortgage payments over an extended period of time, while enjoying frozen foreclosure proceedings. Beyond that, you will be given relief from any form of creditor harassment. It can also be extremely beneficial in instances involving cosigners, as they will be given a more comprehensive form of protection than Chapter 7.

Paying off creditors is also made exceptionally simpler under Chapter 13. It is often known as a consolidation loan. Instead of paying off each creditor separately, you will make your payments to a trustee who will then distribute the money to the appropriate parties. The amount that you pay each month will depend on your surplus and your living conditions. For example, say that you make around $5,000 per month and have a calculated $4,000 in living expenses. You may be required to pay the difference of $1,000 each month. The amount, however, will depend entirely on your situation and it is therefore extremely important that no time is wasted in contacting a knowledgeable California foreclosure lawyer to go over your case with you.

Contact a California Debt Relief Lawyer Today

Filing a petition with Bankruptcy Court for Chapter 13 is complex. A great deal of financial information is needed and it can be difficult to know what you will need to provide the Court with. By working with a California debt relief attorney, you can ensure that your petition is filed properly and that you have the best chance at a brighter future.