Chapter 13 Bankruptcy
Chapter 13 is a repayment bankruptcy, filed to repay some or all of your debts over a 3 to 5 year period. It is usually filed if you are behind on your home loan payments and want to save your home. By repaying your missed mortgage payments over a 3 to 5 year period, and by starting to pay your regular mortgage payment after you file, you will effectively bring your home loan current by the end of your case. Because you will bring your home loan current, you can stop foreclosure of your home. Under certain conditions, you can wipe out a second mortgage or home equity loan by filing what is called a lien strip motion. In most cases, your car loan payments will also be reduced, since you will take the current balance owing and paying it off over a 3-5 year repayment period. In most cases, you will keep your home, car and other assets. More precisely, you will keep all of your assets that are covered by your exemptions. Moreover, unique to Chapter 13 is that you can even keep your assets that are not covered by your exemptions if you propose a repayment plan that repays all of your debts in full. Once you complete your plan payments, you will wipe out your debts and get a fresh start just like you would in a Chapter 7 case.
How a Chapter 13 Attorney Determines If You Can File
In order to file under Chapter 13, your debts must not exceed the secured and unsecured debt limits. This is a very technical analysis that must be done by a Chapter 13 attorney, since depending on what you want to accomplish with your bankruptcy filing, your debts may be characterized as secured versus unsecured. You will also need regular income to file a case that the Court will approve. The regular income requirement can be satisfied by various sources of income, including employment, self-employment, rental income, and even unemployment compensation. Your disposable income under bankruptcy law standards is also a critical factor that will be considered by your San Diego Chapter 13 attorney, as it will affect the amount that you repay to your unsecured creditors. If you own a business, your attorney will have to consider the value of its assets and going concern. In most cases, the total debts of the business will reduce the value to a point that you can legitimately claim there is no equity and therefore the value of your interest is zero. By claiming that the value of your interest is zero, your interest will be covered by your exemptions and fully protected in bankruptcy.
Chapter 13 has strict debt limits, placing a limit on how much secured debt (home loans and car loans) and unsecured debt (credit cards, medical bills, and similar types of debts) you can keep when you file bankruptcy. The debt limits are adjusted every 3 years in April. The debt limits are adjusted by the Judicial Conference of the United States and published in the Federal Register.
As of April 2019, the secured debt limit is $1,257,850 and the unsecured debt is $419,275. These limits identical for the 2020 calendar year and will remain the same through April 2022. Your total secured and unsecured debt must be less than these amounts or else you do not qualify for Chapter 13 relief. If your repayment plan proposes to wipe out a 2nd mortgage or home equity loan though the loan strip process, then the loan will be considered as unsecured debt for purposes of determining whether you are above or below the debt limits. If either your secured debt, or your unsecured debt, exceeds the debt limits, then you cannot qualify for bankruptcy under Chapter 13. If you are going to be doing a loan strip, be sure to discuss with a San Diego Chapter 13 lawyer how this will affect the debt limits.
Because Chapter 13 is a repayment bankruptcy, you must have a regular source of income that is sufficient to make your proposed plan payments, as well all of your other regular monthly expenses. The regular income requirement can be satisfied by various sources of income, including employment, self-employment, unemployment, retirement, rental income, and virtually any other type of income. But the income must be received on a regular basis. If you have a business, a skillful San Diego Chapter 13 bankruptcy attorney can present your income to the Court as an average based on the last several months of income that you have received from your business, and that will generally be sufficient to satisfy the regular income requirement.
Disposable Income Test
Your available disposable income will determine the amount, if any, that you are required to repay to your unsecured creditors. This will be a crucial factor in determining whether or not it makes sense for you to file for Chapter 13 relief. The disposable income test basically takes the Means Test used in Chapter 7 cases and applies it in a slightly modified format. For the most part, the disposable income test is identical to the Means Test. The main difference is that the test is not applied to see whether you qualify to file, but rather to see how much, if any, you will have to pay to your unsecured creditors. As discussed below, this percentage can range from 0% to 100%.
Only individuals can be a debtor in a Chapter 13 case. Business owners can still file, but the owner, not the business, must be the person filing the bankruptcy. As a business owner, you will list your interest in your business as one of your assets. If you operate as a sole proprietorship, then that means that you have not formed a separate legal entity, therefore your Chapter 13 attorney will list the assets used by the business and debts as your personal assets and debts, since a sole proprietorship is not a separate legal entity. If you have formed a corporation or LLC, then your attorney will list your interest in the corporation or LLC (for example, a 100% ownership interest), and state the approximate value of your interest, as one of your assets. An experienced San Diego Chapter 13 bankruptcy attorney can help you file for bankruptcy and keep all of the assets used by the business. At Bankruptcy Legal Center, we have many business owners successfully filing cases and retaining all of their assets. Most importantly, we would never file your case if filing would place your assets in jeopardy.
How the San Diego Chapter 13 Process Works
In San Diego, the Chapter 13 process takes between 3 to 5 years. You may be able to pay off your plan early under certain circumstances and with the trustee’s approval. The trustee’s in San Diego will usually consent to an early payoff if you can show that the money is coming from a source other than your income, for example, a loan from a friend or family member. As part of your filing, your attorney will need to propose a viable Chapter 13 plan, in which you must propose whom you will repay and how much you will repay them. You will need an experienced Chapter 13 attorney to prepare a plan that the Court will approve.
Chapter 13 Plan
Your must propose a viable Chapter 13 plan that is confirmed (approved) by the Court. Otherwise, your plan will be denied Court approval, your case will be dismissed, and you will lose all of the benefits you sought to obtain from your filing. There are a lot of novice bankruptcy lawyers, and as a result the overall rate of approval of Chapter 13 bankruptcies is not very high. However, the most skillful bankruptcy attorneys (there is a handful of them in San Diego) are able to get their clients’ plans routinely approved by the trustees and the Court. There are basically two kinds of lawyers handling Chapter 13 matters: (1) those who should not be handling them and usually have their clients’ cases routinely rejected by the Court; and (2) those who are Chapter 13 specialists and regularly get their clients’ cases approved by the Court. There are many factors that must be considered in presenting a plan that the Court will approve, and a successful plan requires strong familiarity with the local attitudes and practices of the San Diego bankruptcy trustees and bankruptcy judges. If you want your case to be successful, it is an absolute must that you find a bankruptcy attorney who is a Chapter 13 specialist.
Meeting of Creditors
In San Diego, about 30-40 days after your attorney files your case, a Meeting of Creditors will be held. The Meeting of Creditors will be before a trustee, not a judge. Creditors are allowed to appear and ask you questions but they rarely do. You must personally attend the meeting or else your case will be dismissed. The trustee will begin by asking you general questions, such as whether you reviewed your bankruptcy papers, whether they are accurate, and whether there are any changes. The trustee may then ask you some more specific questions regarding your assets, debts, income and expenses, depending on your circumstances. Usually, the focus will be on how much you earn per month, because that can affect your plan payment amount. You must personally attend the meeting or else your case will be dismissed. Your Chapter 13 attorney at Bankruptcy Legal Center will attend the meeting with you to make sure the meeting goes smoothly.
After you successfully complete all of the payments under your three to five year repayment plan, you will receive a discharge your debts. The discharge will eliminate your personal liability for all of your debts that can be eliminated under bankruptcy law.
Chapter 13 permits you to eliminate certain types of debt that you cannot be discharged in a Chapter 7 case. This expanded scope of discharge, frequently referred to as a “Super Discharge,” is very limited and apply to very few types of obligations in specific scenarios. The most common application is to eliminate debt resulting from a divorce or separation agreement other than divorce debts for support (child support, spousal support, and alimony cannot be discharge, even by a Super Discharge). This includes, for example, a divorce court order to pay attorney’s fees to your spouse’s lawyer. A judgment based on willful and malicious injury can also be eliminated in Chapter 13 even though it could be objected to as nondischargeable in Chapter 7. The remaining applications are so rare that they are not discussed here.
Call Bankruptcy Legal Center today to set up your free consultation with a San Diego Chapter 13 attorney to determine if filing Chapter 13 bankruptcy is the right solution to help you and your family. Call us at 619-501-9711.