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What Is A Chapter 13 Bankruptcy?

Chapter 13 is essentially a repayment plan. It is where an individual, using their disposable income, repays creditors over five years. This repayment is accomplished by paying a monthly payment to the chapter 13 bankruptcy trustee who then uses the funds (less the trustee’s fee) to repay creditors. 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. Sometimes the total repayment for creditors can be only a few percent, but in those instances it must be for a total of five years.

The Criteria Of Qualification For A Chapter 13 Bankruptcy and Plan Confirmation

My personal opinion is that, in most cases, if a debtor can qualify for Chapter 7 (with no repayment plan or monthly payment), Chapter 7 is typically a more advantageous way to go, at least here where I practice in Southern California. If someone wants to do the chapter 13 repayment plan, and there are some good reasons to choose to do it, then they would have to demonstrate to the chapter 13 trustee and the court that their plan is feasible. The word “feasible” is a legal term that is used by the Chapter 13 trustee to analyze the option or the ability of the debtor to be able to make those Chapter 13 plan payments over the five-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 five years.

If the Chapter 13 trustee feels that the plan is feasible and meets the requirements of Chapter 13, the debtors provided all the necessary documents and information to the Chapter 13 trustee and to the court, then the Chapter 13 plan will get the trustee’s recommendation for confirmation at the confirmation hearing. The Chapter 13 trustee will recommend to the court that the plan is feasible and unless creditors object to the plan in most instances at that point, the Chapter 13 plan will get confirmed by the judge and then the debtor is in their Chapter 13 plan. What is then required of the debtor is to simply make the monthly Chapter 13 payment to the trustee directly and then also keep all the other bills and creditors current that they agreed to keep current in the Chapter 13 plan and the most common of those is the mortgage payment.

In 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 and as long as they keep everything current, they keep the Chapter 13 plan payments paid on time, their Chapter 13 plan should be successful and they pay into it for five years. At the end of that five years, if they have not paid back all their creditors that is fine, as long as they did as they agreed 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 one to five percent 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.

What Kinds Of Debt Are Dischargeable In A Chapter 13 Bankruptcy?

In Chapter 7 and in Chapter 13, 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. There are a few very minor exceptions, debts that are dischargeable in Chapter 13 that are not dischargeable in Chapter 7, but those are very obscure and rare but can include certain types judgments so it is not something that an ordinary debtor would need to worry too much about. 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.

For more information on Chapter 13 Bankruptcy In California, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (888) 728-0044 today.

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