For many Californians in financial pain or distress, even trying to make the monthly interest payments on their debt can be a challenge, to say nothing of putting any money toward the principal. People may have a steady monthly income but still be unable to make ends meet. California residents should be aware of how filing Chapter 13 bankruptcy may be a way for them to get back on solid ground financially and the advantages Chapter 13 may offer over other types of bankruptcy.
What Is Chapter 13 Bankruptcy?
Chapter 13 personal bankruptcy is also called “wage-earner” bankruptcy because many people who choose to file this type of bankruptcy have a steady income but need time and assistance to reorganize their finances to regain solid financial footing. When a person files Chapter 13, he or she arranges a repayment plan to repay some of the money he or she owes to creditors. The filer makes one monthly payment to the trustee who oversees the case and the trustee distributes the money to creditors according to the priority of the creditors’ claims. The monthly payment is less than what a person would pay if he or she tried to pay all of their bills to various creditors each month.
Repayment plans last either three to five years, depending on various factors. At the end of the repayment plan, if the filer has made timely payments and complied with all other requirements, the court will issue a debt discharge. The discharge means that the filer is no longer personally liable for the dischargeable debts and creditors may no longer attempt to collect on the debts.
Who Can File Chapter 13 Bankruptcy?
Any individual can file Chapter 13 bankruptcy. Unlike Chapter 7 bankruptcy, there are no income restrictions on filing Chapter 13. However, a person’s debts must be under a certain amount to qualify for Chapter 13. A person may have no more than $360,475 in unsecured debt and $1,081,400 in secured debt, these amounts will change again on 4/1/2013.
What Are the Benefits of Filing Chapter 13?
Chapter 13 may be a better option for some people than Chapter 7 bankruptcy. Perhaps the biggest advantage Chapter 13 bankruptcy offers those in financial distress is it can help people save their homes from foreclosure. Once a person files a bankruptcy petition, the court issues an automatic stay on all collection actions – including foreclosure proceedings. People may also use the repayment plan as a means to become current in their mortgage payments over time.
Another benefit of Chapter 13 bankruptcy is that people may reorganize secured debts other than home mortgages so that they may pay them off over the term of the repayment plan, possibly lowering the payments. Many people also appreciate the fact that they make one monthly payment to the trustee overseeing the case, so they need not have any direct contact with their creditors.
Finally, Chapter 13 protects those who have co-signed on debts with those filing bankruptcy. Creditors may not pursue the full debt from the co-signer after the filer receives the debt discharge and is no longer liable for the debt.
Making the decision to file bankruptcy is a big step. People should not take such an action without having as much information as possible. If you have questions about whether bankruptcy is right for you, talk to a skilled bankruptcy attorney who can advise you of your options.
