Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows debtors to keep more types of property in addition to their exempt property you could keep under chapter 7. Generally this is the second choice used by those who are ineligible for a chapter 7 bankruptcy and may be the only option for debtors with income that significantly exceeds their expenses. Chapter 13 is also the only type of bankruptcy that allows you to remove a second mortgage .

In order to qualify for a chapter 13 you must be able to afford to pay your secured debtors within the 3 to 5 year period. Secured debts are debts secured by assets like a car loan or a home mortgage. Therefore you must have a certain amount of excess income after your expenses paid every month. To calculate excess income your expenses are subtracted from your net wages. If there is excess income, you may qualify for a chapter 13 bankruptcy. However, please speak with a San Diego Bankruptcy Attorney to determine whether filing a Chapter 7 or a Chapter 13 bankruptcy is more beneficial. Debt, like credit card bills, are not considered expenses. However, mortgage payments and credit card payments are considered expenses because they are housing and transportation or a legitimate expenses. This excess income will then be used as the payment amount for the monthly payment plan over the next 3 to 5 years.

One of the primary benefits of a chapter 13 is the ability to remove a second mortgage. Where there is no equity in the first mortgage then it is clear the second mortgage is no longer secured by any assets. A chapter 13 bankruptcy allows a second mortgage, with no equity, to be reclassified as an unsecured debt. In the payment plan the second mortgage will be paid the same percentage as any other unsecured debt which usually ends up being pennies on the dollar. This same process can be applied to third and successive mortgages as well.

As a part of any bankruptcy you are required to complete debtors counseling and attend a creditors’ meeting. Debtors counseling is a 90 minute course that informs you about how to better manage your debt in the future. This is a required course that can be taken online for a nominal fee. In addition you will be required to appear at a creditors’ meeting. This is a short meeting where the bankruptcy trustee will ask questions about your debt. A chapter 13 has additional steps related to the payment plan that is created. After a plan is created, the proposed plan is given to creditors. For this plan to be binding, it must be confirmed by the court. The hearing will allow creditors to contest if it meets certain requirements. The debtor does not need to attend the confirmation hearing when they are represented by an attorney.

In a chapter 13 bankruptcy, a payment plan is created which pays your creditors in order of their priority based on bankruptcy law. If you make support payments, such as a child support or alimony, a valid plan requires that these payments be included. All payments are made to the bankruptcy trustee who then pays your creditors. After the end of the 3 to 5 year payment plan, a discharge is given for any unsecured debts remaining unpaid. As the final step after filing, you will be required to take another short course on managing your finances. This must be submitted or you will not receive your discharge.

In the event your income increases in the future the bankruptcy trustee can increase the payment amount for your payment plan. Even though you are on a payment plan, which usually includes the arrearage of your mortgage, you still must pay your separate mortgage payment in addition to your monthly plan payment.
A Chapter 13 bankruptcy can be a somewhat of a complicated bankruptcy. However, in order to determine whether filing for Chapter 13 is the right choice for you, it is always betst to speak to a San Diego Bankruptcy Attorney.