Chapter 13 Bankruptcy
In chapter 13 bankruptcy you can keep your property while repaying a percentage of your debts over several years. Whereas in chapter 7 bankruptcy non-exempt property is sold to repay creditors in exchange for a discharge, chapter 13 bankruptcy entails a different trade off. In exchange for being able to keep your property (including nonexempt property) you will commit to a repayment plan. Generally you must commit your disposable income to the repayment plan for three to five years. Once you have completed the repayment plan any remaining unsecured debts will be discharged (if they are eligible for discharge).
Why Chapter 13 Instead of Chapter 7?
- You make too much money to qualify for chapter 7 bankruptcy. To qualify for chapter 7 bankruptcy you must pass the means test. If you make too much money this may not be possible. If that’s the case your only option may be to file chapter 13 bankruptcy.
- You have nonexempt property. If you have property that cannot be protected under the California 703 or 704 exemption schemes you may choose to file chapter 13 bankruptcy rather than lose your property in chapter 7 bankruptcy. This preference is often made by individuals who have significant equity in their homes or several cars.
- You need to save your home from foreclosure. Chapter 7 bankruptcy can stop foreclosure, but only temporarily. In chapter 7 bankruptcy the lender will eventually be able to resume foreclosure since you will continue to be in default on your home loan. However, in chapter 13 bankruptcy you can repay late mortgage payments through the repayment plan and thereby bring yourself current on the loan. Once you are no longer in default the lender cannot resume foreclosure proceedings.
- You can eliminate your second mortgage. If your house is worth less than the amount you owe on the first mortgage you may be able to eliminate the second mortgage in chapter 13 bankruptcy.
- You need to repay tax debt. Sometimes tax debt cannot be eliminated in chapter 7 bankruptcy. In that case, the IRS or Franchise Tax Board will resume collection once the chapter 7 case is over. In chapter 13 bankruptcy you can repay tax debt over 3 to 5 years at little to no interest.
Attorney Fees in Chapter 13
Chapter 13 bankruptcy usually costs more than chapter 7. In the Eastern District of California most chapter 13 bankruptcy cases cost $4,000 total in attorney fees, while cases that involve a business cost $6,000. These maximum fees fall within the no-look chapter 13 fee guidelines established by the bankruptcy court for the Eastern District of California; hence, most bankruptcy attorneys charge the same total fee. However, bankruptcy attorneys vary in how much of the fee is paid before filing. In chapter 13 the attorney’s fee can be financed through the chapter 13 plan, whereas in chapter 7 bankruptcy the attorney’s fee must be paid in full before filing. Therefore, Sacramento Law Group generally charges $1,000 to $2,000 before filing and finances the remaining portion of the attorney fees through the repayment plan.