Chapter 13 Bankruptcy
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Irvine Chapter 13 Bankruptcy Attorneys

Everything You Need to Know About the Wage Earner’s Plan

Chapter 13 bankruptcy is sometimes referred to as a wage earner’s plan, because the person filing is still employed and earning regular wages. As such, this form of bankruptcy enables individuals with regular income to present a plan to repay all or part of their debts.

Under the Chapter 13 bankruptcy law, debtors propose a repayment plan in which they will make installment payments to creditors over a period of three to five years.

  • If your current monthly income is less than the applicable state median, the plan may be for three years, unless the court approves or requires a longer period of repayment under the law.
  • If your current income is greater than the applicable state median, the insolvency plan generally must continue for five years. The plan cannot provide for payments over a period longer than five years.

During the established repayment time, whether it be three or five years, the law forbids creditors from initiating or continuing collection efforts.


Find out if you are eligible for Chapter 13 bankruptcy by contacting McFarlin LLP for a free consultation. We can be reached at (949) 570-5025 or via our online contact form.


About the Chapter 13 Process

Your case will begin with your attorney filing a petition with the U.S. Bankruptcy Court serving the area where you live. Once the Chapter 13 is filed, you will meet with the case trustee, who will then evaluate your ability to fund your plan. If the trustee is satisfied with your income and your ability to pay, and has no other issues with the case, the trustee will then recommend the case for confirmation. Only a judge can formally “confirm” a Chapter 13 plan.

However, the judges rely heavily on the opinion of the trustee and often approve the trustee’s recommendation on the case. After the case is confirmed by the judge, you will be required to make regular monthly payments into your plan. The money from your payments will get disbursed in an orderly fashion to creditors on a “pro rata” basis.

Am I Eligible for Chapter 13?

Whether you are self-employed or operate a business, if your unsecured debts (not used as collateral for debts) are less than $336,900*, and your secured debts (collateral for debts) are less than $1,010,650* you are eligible for relief through a wage earner’s bankruptcy plan.

Important items to note about Chapter 13 bankruptcy:

  • A corporation or partnership may not, under any circumstance, file for Chapter 13.
  • If someone wants to do the Chapter 13 repayment plan, they must demonstrate that their plan is feasible. In this case, the word “feasible” is used by the Chapter 13 trustee to analyze the option or ability of the debtor to be able to make their Chapter 13 plan payments over the 5-year period. Much of what goes into feasibility analysis is the amount of disposable income, the stability of the income, the necessary living expenses, how the expenses are structured, and if they see stability going forward for the next 5 years.
  • It is typically not necessary for the debtor to pay 100% of what is owed to creditors, generally only to pay the amount of their disposable income into the chapter 13 plan. In most instances, the debtor will agree that they are going to keep the mortgage current, they are also going to maintain insurance for their home and their car and everything else. At the end of the 5-year arrangement, if they have not paid back all their creditors that is fine, so long as they did as agreed upon in the plan. All that is required of them is that they make their best effort to pay as much as they can with the disposal income they have. In many Chapter 13 plans, the debtors only end up paying back a small percentage. It can be 1-5% to creditors and then get a discharge for the remaining balances, but as long as they have shown that they have put all their disposable income, everything that they have into the Chapter 13 plan, that will typically be fine to discharge unsecured debts.

*These amounts are adjusted periodically to reflect inflation and changes in the consumer price index.

What Do I Need to Provide to File Chapter 13?

In order to complete and file a wager earner’s plan, you must provide the following information:

  • A list and some background details on all creditors (amount owed, date incurred)
  • A detailed list of your monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
  • Information and details regarding the filing, pay-stubs, and your income
  • A list of all of your property
  • Driver’s license
  • Social Security card
  • A copy of your taxes from the year prior to filing
  • A valid certificate of credit counseling
  • A copy of any debt repayment plan prepared through a credit counseling agency

What Kinds of Debt Are Dischargeable in a Chapter 13 Bankruptcy?

In both Chapter 13 and Chapter 7 bankruptcies, most unsecured debts like credit cards, medical bills and unsecured loans are dischargeable. In Chapter 13, frequently taxes are not dischargeable, but can be paid through a Chapter 13 plan. The payments that go to the trustee can then be used to pay the taxes. For the most part, the debts that are dischargeable in Chapter 7 are also dischargeable in Chapter 13.

For the most part, unsecured debt is dischargeable in both Chapter 7 and Chapter 13, and backed-up secured debt, like back mortgage payments, can be “caught up” in Chapter 13, which is common practice.

Benefits of Chapter 13

This filing gives you the opportunity to save your home from foreclosure by creating a repayment plan for mortgage lenders. By filing under Chapter 13, individuals can stop foreclosure proceedings, and have the opportunity to cure delinquent mortgage payments over the course of the time established for completing the plan. Nevertheless, debtors must still make all mortgage payments in full that come due during the Chapter 13 plan period, on time as they come due.

Another advantage is that it allows individuals to re-amortize secured debts (other than a mortgage for their primary residence) and pay them over the life of the plan. Taking this action may lower the payments and make them more affordable.

Chapter 13 law also has a special rule that protects third parties who are liable with the debtor (co-debtors) on “consumer debts.” This co-debtor “stay provision” protects co-signers during the plan.

Finally, Chapter 13 acts like a consolidation loan under which the debtor makes the plan payments to a trustee who then disburses payments to creditors evenly.

For Chapter 13 Bankruptcy Help in Irvine, Call McFarlin LLP

At McFarlin LLP, we pride ourselves on providing our clients with excellent legal services. We understand that going through insolvency can be a frustrating experience. That is why we want to assist you.

Our clients benefit from: same-day consultations, Spanish-speaking services, affordable payment plans, zero-money down (after the means test), and so much more!

We offer free consultations to prospective clients, so contact us today at (949) 570-5025 or via our online contact form.

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