Chapter 13

Filing for a Chapter 13 Bankruptcy is governed by Chapter 13 of Title 11 of the United States Code. A Chapter 13 Bankruptcy is one wherein the Debtor (i.e. individual filing for relief) reorganizes his/her debts and enters into a repayment plan for 3 to 5 years to pay back certain portions of the debt. The Debtor under Chapter 13 must prove to the Court that they have regular consistent income in order to pay their monthly installment payments. Once that has been done, the Debtor will begin to realize how wonderful Chapter 13 really is.

Chapter 13 Bankruptcy offers Debtors an extraordinary relief not available under any other chapter of Bankruptcy. Did you know that in Chapter 13, a Debtor can “strip” a second mortgage and never have to deal with it again? Did you know that under Chapter 13 relief, you can force a creditor to immediately stop any foreclosure proceedings and allow yourself time to cure the delinquency in a Chapter 13 Plan? These are only two of the many benefits a Chapter 13 can provide a Debtor. To learn more about Chapter 13, read below and contact our office by calling 916-800-7690 to speak with local Sacramento Chapter 13 Bankruptcy Attorney Pauldeep Bains.

How Does A Chapter 13 Operate?

Filing for Bankruptcy under Chapter 13 is initiated by the filing of the Bankruptcy Petition with the Bankruptcy Court. The Petition informs creditors and the Court the name and address of the individual filing for relief, what exactly they are filing, where they are filing, and other standard information in regards to the filing. Once this Petition is filed, the individual’s case is now active and their 3 to 5 year repayment plan is underway. Along with the Petition, several other documents are filed with the Court with more detail into the Debtor’s finances, including a list of their creditors, a picture of their prior income and a forecast of their future income, and a list of their assets. Fed. R. Bankr. P. 1007(b). In addition, all Chapter 13 Debtors must file with the Court their proposed Chapter 13 Plan. Once filed, Creditors are prohibited from initiating or continuing collection efforts against the individual who filed.

The next step one must consider in a Chapter 13 Bankruptcy is attending a meeting of creditors pursuant to 11 U.S.C. § 341. This meeting will generally take place approximately 30 to 45 days after the Petition is filed. At this meeting, the Debtor will be questioned by the assigned Chapter 13 Trustee in regards to their finances. The Chapter 13 Trustee is an impartial Court appointed individual designated to administer the case. 11 U.S.C. § 1302. Moreover, any creditor in interest has an opportunity to attend this hearing and ask a reasonable amount of questions as well.

Once the Trustee is satisfied with the Debtor’s testimony in regards to their filed paperwork, the hearing will be concluded and in most instances, the Debtor will not need to attend another hearing in the Chapter 13 case. Generally speaking, the Debtor’s Bankruptcy Attorney can appear at all future Court hearings in front of the Bankruptcy Judge without the Debtor being present.

Concurrently, the Debtor must also start making his/her monthly installment payments to the Chapter 13 Trustee. These payments will continue for the duration of the Debtor’s Chapter 13 Plan.  The length of the Debtor’s Chapter 13 Plan is controlled by 11 U.S.C. § 1322(d). As stated, the Chapter 13 plan is not allowed to be longer than 5 years. Moreover, if the Debtor’s current monthly income is less than the applicable state median, the Debtor would be eligible for a 3 year plan.

Once the Chapter 13 case has been initiated, the § 341 Meeting of Creditors has been concluded, and the monthly installment payments have begun, the Debtor must receive the approval and confirmation of the filed Plan from the Bankruptcy Judge. The assigned Chapter 13 Trustee and any creditors in interest have the ability to object to the confirmation of the plan if they feel that the filed plan is not in align with the required Chapter 13 rules and regulations.  These rules and regulations that the Debtor must consider when attempting to confirm a Chapter 13 Plan can be found in 11 U.S.C. § 1325.

If any objections are filed, the Debtor and the objecting party will present their arguments to the Bankruptcy Judge in order for the Judge to make a necessary ruling. Once all elements are met and the Plan is confirmed, the Debtor will continue to make his/her monthly installment payments for the duration of the Plan. Upon completion of the 3 to 5 year payment term, the Debtor must now request the Court to enter a Discharge in his/her case pursuant to 11 U.S.C. § 1328.

What Is The Chapter 13 Plan?

The Chapter 13 Plan is the document that lays out what the Debtor will pay each Creditor in his/her case during his/her 3 to 5 year repayment plan. The creditors are separated out into different categories and based on their designation, each is required to be paid a certain amount through the plan. Below you will find a list of some of the general categories in a Chapter 13 case to be filed in the Eastern District of California and the amount that is required to be paid:

  • Priority Debts will be paid 100% of the claim amount in the Chapter 13 Plan. Two common Priority Debts are most tax debts and unpaid child/spousal support.
    • EXAMPLE – Debtor has $4,000.00 owed to the Internal Revenue Service for unpaid taxes for the previous year. This $4,000.00 will be paid in full during the Debtor’s Chapter 13 Plan.
  • Mortgage Arrears will be paid 100% of the claim amount in the Chapter 13 Plan. An exception to this would be a wholly unsecured junior mortgage (explanation provided below).
    • EXAMPLE – Debtor is delinquent on his/her 1st mortgage in the amount of $10,000.00. As long as the Debtor is keeping the home, this $10,000.00 will be paid in full during his/her Chapter 13 Plan.
  • Car Loans with less months remaining on the loan than the length of the Chapter 13 Plan (i.e. Debtor has a car loan with 40 months remaining and he/she is proposing a 60 month Chapter 13 Plan) will be paid 100% of the claim amount in the Chapter 13 Plan.
    • EXAMPLE - Debtor has $12,000.00 remaining on his car loan. This $12,000.00 will be paid in full during the Debtor’s Chapter 13 Plan.
  • Administrative Claims will be paid 100% of the claim amount in the Chapter 13 Plan. The most common Administrative Claim is the Debtor’s Bankruptcy Attorney’s fees that were not paid prior to the case being filed.
    • EXAMPLE – Debtor’s Bankruptcy Attorney is still owed $1,000.00 for his/her attorney’s fees. This $1,000.00 will be paid in full during Debtor’s Chapter 13 Plan.
  • General Unsecured Creditors will get paid anywhere from 0% to 100% of the claim in the Chapter 13 Plan. Some common types of General Unsecured Creditors are credit cards, medical bills, personal loans, payday loans, and car repossession deficiency balances. The exact amount that they will get depends on the Debtor’s disposable income and the total value of the non-exempt assets.
    • EXAMPLE 1 – Debtor’s disposable income shows that he/she has $200.00 per month leftover to pay to the General Unsecured Creditors. This $200.00 per month will be paid to the General Unsecured Creditors over the length of the Chapter 13 Plan.
    • EXAMPLE 2 – Debtor’s disposable income shows that he/she has no money leftover to pay to the General Unsecured Creditors. This means Debtor qualifies for a 0% plan and the General Unsecured Creditors would not be required to get any money during the Chapter 13 Plan.

Benefits Of Chapter 13

When properly navigated, a Chapter 13 Bankruptcy can provide clients with many benefits that they would be unable to attain without the confines of the Chapter 13. Below you will find some common benefits of filing for Chapter 13.

    • The Chapter 13 allows you to stop a creditor from foreclosing on your home and allows you up to 5 years to catch up on the delinquency. Pursuant to 11 U.S.C. § 362, the filing of the Petition triggers the Automatic Stay to come into effect. The Automatic Stay acts as a ban or injunction on creditors from pursuing collection attempts or enforcing liens. Simply put, a lender is not allowed to foreclose on your property.

During the Chapter 13, the Debtor will slowly pay back the delinquent mortgage payments as part of the Chapter 13 Plan payments. In addition, the Debtor will begin paying the ongoing mortgage payments as well. As long as the Debtor pays the monthly Chapter 13 payments, they will be able to save their home from being foreclosed on.

    • The process of lien stripping in a Chapter 13 allows a Debtor to remove a second mortgage from your home and treat the debt as a general unsecured debt. To accomplish this, the Debtor would file a Motion with the Bankruptcy Court pursuant to 11 U.S.C. § 506 to value the property. The Debtor would have to prove to the Court that the value of the home is less than what is owed on the superior mortgage. If successful, the junior lien is then treated as wholly unsecured and can be “stripped” in the Bankruptcy. It would receive the same treatment as the other general unsecured claims (i.e. credit cards) in the Debtor’s Chapter 13 case. Upon completion of the Bankruptcy, the creditor would be required to remove their lien from the Debtor’s property.
      • EXAMPLE – The Debtor owns a home with a fair market value of $300,000.00. The Debtor owes $400,000.00 on the first mortgage and an additional $100,000.00 on a second mortgage. Through the Chapter 13, the Debtor could “strip” the second mortgage from their home and the creditor would be required to release the lien.
    • The Chapter 13 allows the Debtor to restructure their vehicle loan and pay it back during the 3 to 5 year Chapter 13 Plan. By doing this, it will sometimes lower the monthly payment on the vehicle loan since you are spreading it out for up to 5 years. Also, a Debtor can sometimes lower the interest rate to a reasonable amount.
    • Most tax debts are generally non-dischargeable in a Bankruptcy. Non-dischargeable means that the Bankruptcy Discharge does not eliminate the legal obligation to pay back that certain debt. In a Chapter 13, the Debtor can include their priority taxes in the plan and pay it back over the 3 to 5 year repayment plan.
    • When filing for a Chapter 7 Bankruptcy, the Trustee can require a Debtor’s business to be shut down. However, if that same Debtor files a Chapter 13, they will be allowed to continue to run their business without the risk of it being shut down.
    • On vehicles and other personal property (i.e. furniture, electronics, etc.), the Debtor can reduce the amount of the secured claim down to the fair market retail value of the asset. Once proven, the remainder of the claim becomes a general unsecured debt and the Debtor is only required to pay the secured portion of the claim.
    • A judgment lien is when a creditor wins a lawsuit against you and then attaches that lien to your property. A Debtor can avoid a judgment lien against his/her property through the Bankruptcy. The Debtor needs to prove that the judgment lien impairs an exemption that he/she is entitled to. Then, using 11 U.S.C. 522(f), the Debtor would request the Court enter an order avoiding that lien.

How We Can Help

Filing for Chapter 13 relief is a difficult process. Anyone filing a Chapter 13 should not only be familiar with the Bankruptcy Code and how it can be used advantageously to your benefit, but they also must be knowledgeable of the Local Rules of the Bankruptcy Court. Mr. Bains possesses both skills. Mr. Bains has been helping clients through the difficult world of Chapter 13 for 6 years and has the knowledge and expertise to successfully navigate you through a Chapter 13.

Do not let another day go by without speaking to our office. Call 916-800-7690 to set up your free consultation with our dedicated Chapter 13 Bankruptcy Attorney Pauldeep Bains. By calling our office, you will speak directly with a Sacramento Bankruptcy Lawyer who specializes in Chapter 13 bankruptcies. You will continue to deal directly with Mr. Bains through the entire Chapter 13 process and will not be passed on to a staff member like many other offices will do.

We help clients in the following areas: Sacramento, Elk Grove, South Sacramento, West Sacramento, Natomas, Citrus Heights, Antelope, Fair Oaks, Gold River, Rancho Cordova, Roseville, Rocklin, Folsom, El Dorado Hills, Lincoln, Wheatland, Yuba City, Marysville, Woodland, Davis, and Lodi.

Free Consultation

Here at Sacramento Bankruptcy Lawyer, we set ourselves apart from other firms because we provide direct client to attorney contact from the initial consultation all the way through the discharge in your particular case. We will not pawn your case off to a staff member at any point through the process. When you call Sacramento Bankruptcy Lawyer, you WILL speak with local Sacramento Bankruptcy Lawyer Pauldeep Bains. Please call Sacramento Bankruptcy Lawyer ASAP at 916-800-7690 to schedule your FREE in-person or phone consultation with Pauldeep Bains and let Sacramento Bankruptcy Lawyer begin getting you the fresh start that you deserve.