Chapter 13 Bankruptcy FAQs

Frequently Asked Questions About Chapter 13 Bankruptcy

What Is Chapter 13 Bankruptcy and How Can Our Redlands Law Firm Help?

If you earn a steady income yet still have problems with your debt, Chapter 13 bankruptcy may be right for you. This process helps reorganize your debts so you can repay them in a more manageable fashion. This type of bankruptcy has many benefits as well as some drawbacks. However, our Inland Empire bankruptcy attorney is ready to help.

At Dolen, Tucker, Tierney & Abraham, we help individuals and families get their financial lives back on track. To help this effort, we have provided a list of the most frequently asked questions about Chapter 13 bankruptcy. This will help keep you informed about this legal option and whether it is right for you.

What Is the Difference Between Chapter 7 and Chapter 13 Bankruptcy?

In 2020, over 440,000 Americans filed for Chapter 7 bankruptcy. In that same time period, almost 234,000 people filed for Chapter 13 bankruptcy. This makes these two bankruptcy types the most commonly filed in the United States. However, these two types of bankruptcies are substantially different.

In Chapter 7 bankruptcy, a trustee may liquidate your nonexempt assets to pay your creditors. In Chapter 13 bankruptcy, you keep your property but must propose a repayment plan in order to pay your creditors. These differences can have a critical effect on what type of bankruptcy you should consider filing.

Though most property in California can be exempt, if you have property that is not exempt, then filing Chapter 13 may be the better option. Chapter 13 may also be the better option if you have non-dischargable debts such as alimony or child support or if you are behind on mortgage payments. An experienced Chapter 13 bankruptcy lawyer can help you sort through the details and find the best option for your situation.

What Are the Similarities Between Chapter 7 and Chapter 13 Bankruptcy?

If you file for either Chapter 7 or Chapter 13 bankruptcy, both will have these effects:

  • Both Will Impact Your Credit - In the event you file either chapter, your credit score will go down. But Chapter 13 will have a lesser impact than Chapter 7.
  • Automatic Temporary Stay – Filing bankruptcy (no matter the chapter) triggers an automatic stay. This will prevent creditors from hassling you with collection calls or letters. It will also stop foreclosures, repossessions and certain court proceedings.
  • Debt Discharge - At the end of both the Chapter 7 and Chapter 13 processes, the court will eliminate any remaining unsecured debt. This discharge does not affect secured debts such as mortgages or car payments.

What Debts Will I Have to Pay If I File for Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy helps you pay down as much of your debt as possible instead of simply discharging it all. This could result in you paying your debts fully or paying a smaller percentage of those debts. How much you pay back will depend on the value of your nonexempt property, the amount of your disposable income, and how long your repayment plan lasts.

The debts your Chapter 13 repayment plan must account for include:

  • Administrative Costs - You must pay your filing fee, trustee commission and attorney fees in full.
  • Priority Debts - You must pay debts the court considers a priority in full. This can include debts such as back taxes (both state and federal), back alimony and unpaid child support. Other priority debts can include wages, salaries and commissions owed to your employees as well as contributions to employee benefit funds.
  • Secured Debt Default - If you are behind on payments for a secured debt, you must pay these defaults in full. If you fail to do so, then your creditors may repossess or foreclose on the collateral assets. Examples of secure debts include mortgages and car loans.
  • Unsecured Debts - You do not always have to pay these debts in full. The court may reduce what you must pay on these debts based on several factors. As mentioned above, your disposable income, nonexempt property value, and how long your plan lasts will determine what you pay.

How Long Does Chapter 13 Bankruptcy Take?

The pre-confirmation period for a Chapter 13 bankruptcy often lasts three to six months. However, once you have created your Chapter 13 repayment plan, and a judge approves, it can take three to five years to complete. How long your plan lasts is usually dependent on your income level. If your current monthly income is less than California's annual income median for a household of your size, then your repayment period will be three years. If you make more than California's median, then your plan will last five years.

How Much Is Chapter 13 Bankruptcy?

To file for Chapter 13 Bankruptcy, there are several fees that you must pay. These fees can include, but are not limited to:

  • Filing Fee for Chapter 13 - $313 (as of December 1, 2020)
  • Converting your Chapter 7 filing to a Chapter 13 filing - Free
  • Converting your Chapter 13 filing to a Chapter 7 filing - $25
  • Qualified credit counseling course - $19.95 and up
  • Credit report - $30 to $35 per person or couple
  • Attorney fees ranging from $5,000 - $6,000 in Riverside and San Bernardino Counties, California.

Note, several factors affect how much you will pay in attorney fees. Requesting to wipe out a student loan or a second mortgage takes a separate filing. This could result in a higher attorney fee. Sole proprietors of a business may also need to pay more due to the complexity of such cases. Debtors involved in a lawsuit when they file for bankruptcy may also pay higher attorney fees.

You should also note that simpler cases often result in lower attorney fees. So, staying organized, keeping your case simple and not having a lot of creditors will save you money on attorney fees. Remember, even the Administrative Office of the U.S. Courts recommends consulting an attorney if you plan to file for bankruptcy.

Am I Eligible for Chapter 13 Bankruptcy?

As mentioned before, Chapter 13 bankruptcy is a tool for individuals who make a steady income, yet still have debt problems. Only individuals and the sole proprietors of businesses may file for this chapter of bankruptcy. Here are some of the other Chapter 13 eligibility requirements you must meet:

  • Your unsecured debts must be less than $394,725.
  • Your secured debts must be less than $1,184,200.
  • You must complete an accredited credit counseling course.
  • You may not be able to file if the court dismissed a prior bankruptcy petition within the past 180 days.

Can I Buy a House or a Car While in Chapter 13 Bankruptcy?

Incurring new debts are not encouraged while going through the Chapter 13 bankruptcy process. However, certain transactions such as buying or selling a home or vehicle are possible. It requires the approval of your bankruptcy trustee and judge.

How Long Does Chapter 13 Bankruptcy Stay on Your Credit?

Due to the effort to repay your debts, Chapter 13 bankruptcy only stays on your credit report for seven years. This is a significant benefit over Chapter 7 bankruptcy, which can stay on your report for 10 years.

Can I Pay Off Chapter 13 Bankruptcy Early?

In most cases, paying off your Chapter 13 bankruptcy plan early is not possible. The exception to this is when you are paying creditors in full.

Do You Have More Questions About Chapter 13 Bankruptcy? We Are Only a Phone Call Away

The Redlands Chapter 13 bankruptcy attorney at Dolen, Tucker, Tierney & Abraham is ready to help. M. Wayne Tucker has over 30 years of experience helping families with their legal troubles. He can help you find the best solution for the financial troubles you and your family are facing. For a no-charge bankruptcy consultation, call us at (909) 326-2769 or fill out our online contact form.