Chapter 13 Bankruptcy



Filling for bankruptcy was so much easier than we thought. With Rinne Legalby our side we were able to get through the process quickly and we ended upsaving a lot of money. Their staff is very responsive and answers allquestions promptly.

K.S., Fairfield, California

Chapter 13 bankruptcy is named for the chapter of the bankruptcy code which can be found in Chapter 13 of Title 11 of the United States Code.

How to lower your secured debts

In Chapter 13 bankruptcy you can have the court lower your secured debts under certain circumstances. If your car, for example, is worth less than what you owe on it, the court can reduce the loan to the car's current market value. For example if you owe $15,000.00 on your car but it is worth only $10,000.00, you can have the loan reduced to $10,000.00. Your new payments under the plan will be based on a $10,000.00 balance versus a $15,000.00 balance. In addition if you have a second mortgage on your home and there is no equity in that mortgage the judge can completely remove or "strip" that second mortgage so that you will not have to make payments on it anymore.

Repaying some of your debt

In Chapter 13 you will have to pay some of your debts over a three- to five- year period. You will have to show the judge that you have enough income to pay your priority debts, such as income taxes or child support, as well as your secured debts such as your mortgage or car payments. If you have non-exempt assets you want to keep, you will have to show that over the three- to five-year life of the plan, you can pay an amount at least equal to the amount of nonexempt assets to your unsecured creditors, such as credit card issuers. That means if, for example, you have an expensive car you want to keep and there is $10,000.00 of nonexempt equity in that car, you will have to pay at least $10,000.00 to unsecured creditors.

Duration of the repayment plan

If your income is below the median income for the size of your household in California you will be able to propose a three year payment plan. Anything you did not repay after expiration of the three years will be discharged. If your income is above the median income, you will have to do a five- year payment plan and as a consequence you will pay back more to the creditors.

If the payment plan does not work

If during the three- or five- year period of the plan you lose your job or you cannot make the plan payments for other reasons, your Chapter 13 plan can be converted into a Chapter 7 case, it can be dismissed, or your debts will be discharged at that time. In order to get your debts discharged you will have to convince the judge that you have a financial hardship which is typically a difficult to establish.