Should I File Chapter 13?

If you are considering your debt relief options, you may be asking yourself, “should I file Chapter 13?”  In some cases, your attorney may recommend that you file this type of bankruptcy because your income will be too high to qualify for a more simple filing or due to other factors involved in your unique situation.  But in some cases, your bankruptcy attorney will make an affirmative decision to file under this Chapter, even if you qualify for filing straight bankruptcy under Chapter 7.  Not all remedies and protections are available under every Chapter.  Your lawyer must determine your needs and goals and then recommend the appropriate Chapter that will achieve your goals. 

Should I File for Chapter 13 Bankruptcy In San Diego

So, why would someone want to file a Chapter 13 repayment proceeding. If you cannot qualify for straight bankruptcy under Chapter 7, then you will be forced to file a repayment proceeding and repay part or all of your debts over time.   But even if you could qualify for a simple filing with no repayment plan, you may need to file repayment case in order to stop a foreclosure of your home or to wipe out a second mortgage or home equity loan.  You do so by proposing a repayment plan and repaying your mortgage arrears over a three to five-year period.  If you income is too high, you may also have to repay some or all of your unsecured debt.  Once you complete your repayment plan, your remaining debts (the ones that you did not repay under your court approved repayment plan) are eliminated.

Powerful Protections

Among the protections of bankruptcy, some of the most powerful protections are specific to Chapter 13.  These special protections, however, often come at a price, because you will have to commit to a repayment plan where you will have to make payments (it is a repayment proceeding) to a trustee for a three to five year period.  Perhaps the most important special protection is that you can permanently stop a foreclosure of your home by repaying your missed home loan payments over time.  You cannot do this in a straight bankruptcy case.

Important Benefits

Some of the most important benefits of bankruptcy are only available in a repayment bankruptcy such as Chapter 13.  One of these benefits is called lien stripping.  This is a process that is used to wipe out your 2nd mortgage or home equity loan so that the lien is physically removed from your property.  Another huge benefit is that you can spread out the payments on your car loan over 5 years.  So, for example, if you have only 2 years left on your car loan, you can spread out the repayment term over 5 years, which will result in lowered payments.  Depending on how long it was since you took out your car loan, you may even have the option of repaying only the value of the car instead of the car loan balance.

Eliminate Unsecured Debt 

Similar to Chapter 7, you can eliminate your unsecured debt, such as credit card debt, medical bills and collection accounts.  However, just how much of your unsecured debt you will be able to eliminate in a Chapter 13 case depends upon your available disposable income.  The bankruptcy court will apply a disposable income test, which is essentially the same thing as the Means Test, to determine how much unsecured debt, if any, you will have to repay.   If your income is really low, you may not have to pay anything.  If your income is really high, you may have to repay all of your total unsecured debt.   If you have average income, you may have to pay 25% or 50% of your total unsecured debt, or whatever percentage the Means Test requires you to pay. 

Chapter 13 Attorney

A Chapter 13 attorney that specializes in repayment bankruptcy filings can explain the protections and benefits available to you and advise you.  If you are facing a home foreclosure, or need to wipe out a second mortgage or home equity loan, talk to a bankruptcy attorney San Diego, to see if Chapter 13 is the right remedy for your situation.