United States Code Title 11 outlines the various sections of bankruptcy law. There are five chapters of bankruptcy, including Chapter 7, Chapter 11, Chapter 12, Chapter 13, and Chapter 15. Those filing for personal bankruptcy are likely looking to file under Chapter 7 or 13. Both can help relieve certain debts but in different manners.
Exploring all bankruptcy options with an experienced bankruptcy attorney should be the first step before filing. Bankruptcy can be complicated, and what might be the best source of relief for one person may not be adequate for another. In order to get a fresh start and do what is best, it may be wise to schedule a free consultation with a knowledgeable Riverside bankruptcy lawyer.
Individual consumers typically choose Chapter 13, also known as wage-earner bankruptcy, to arrange their personal finances under a repayment plan, which must be completed in a certain timeframe–usually 3 or 5 years. A consumer must have a regular source of income and may not have more debt than what is allowed under the Bankruptcy Code in order to qualify for Chapter 13 relief.
In accordance with this chapter, debtors offer a repayment strategy that involves paying creditors in installments over a three-to-five-year period. The plan lasts for three years if the debtor’s monthly income (based on the time bankruptcy is filed) is less than the relevant state median unless the court grants a longer period for good cause. The plan must typically last for five years if the debtor’s current monthly income exceeds the applicable state median. A plan may never include payments spread out over a period longer than five years. The law prevents any creditors from starting or continuing any collection activities during this time and preventing a foreclosure and repossession.
Almost all current collection proceedings against the debtor or their property will receive an automatic stay when a petition under chapter 13 is filed. However, some of the actions enumerated under 11 U.S.C. 362(b) are not stopped by filing the petition, and in some cases, the stay may only last a short while.
The primary distinction between Chapter 7 and Chapter 13 is that while Chapter 7 concentrates on eliminating unsecured debt like credit card debt, personal loans, and medical expenses, Chapter 13 also permits files to discharge on secured debts like mortgage or auto loans.
Another main difference is who is eligible for Chapter 7 bankruptcy vs. Chapter 13. Income mainly determines eligibility. In order to petition under Chapter 7, debtors must either earn less than the state’s median income or pass a means test that determines if they have enough disposable income (i.e., money left over after paying for necessities) to repay their obligations.
In the event that filers are ineligible for Chapter 7, they might choose to consider Chapter 13 bankruptcy instead.
Income is not the only eligibility for Chapter 13 bankruptcy. Any person, even those who are self-employed or running unincorporated businesses, is qualified for chapter 13 relief as long as their total secured and unsecured obligations as of the filing date are less than $2,750,000.
A debtor is not permitted to file under chapter 13 or any other chapter if they have previously had a bankruptcy petition dismissed within the previous 180 days as a result of the debtor’s willful failure to appear in court or to follow court orders or as a result of the debtor’s voluntary dismissal after creditors sought the bankruptcy court’s assistance in recovering property for which they have liens.
Additionally, a person must have received credit counseling from an accredited credit counseling organization within 180 days in order to qualify as a debtor under chapter 13 or any other chapter of the Bankruptcy Code. This can be done either individually or in a group setting. A debt management plan must be filed with the court if one is created at the required credit counseling session.
In order to file for Chapter 13 bankruptcy, individuals must submit proof of other federal and state income taxes for the last four years and the current filing year. This is to show that there is sufficient disposable income to enter into a repayment plan.
Once someone is determined eligible, either they decided on their own or with the assistance of a Chapter 13 bankruptcy attorney, they can then begin the process. The California bankruptcy filing can be difficult, and it may be best to have a lawyer handle the process. Many law firms dedicate their entire practice to helping individuals and businesses file for bankruptcy.
The first step will be to file a petition with the proper California bankruptcy court. The debtor is also required to file further documentation with the court unless the judge decides otherwise. This contains a statement of financial affairs, schedules of assets and liabilities, a schedule of current revenue and expenses, a schedule of executory contracts, and a schedule of leases that have not yet expired. The debtor will also need to provide both a certificate of credit counseling as well as a copy of a debt repayment plan created through credit counseling is also required to be filed by the debtor.
Other documents that must be submitted by the debtor include:
Pre-discharge debtor education and pre-bankruptcy credit counseling are mandated requirements for all individual bankruptcy filers. These might not be offered simultaneously. Prior to filing for bankruptcy, filers must receive credit counseling. After filing, they must receive debtor education.
Before the filer’s obligations can be discharged, a certificate of completion for both credit counseling and debtor education is required. These certificates may only be given out by debtor education course providers and credit counseling businesses that have received U.S. Trustee Program approval.
The debtor must submit a repayment plan with the petition or within 14 days of filing it unless the court approves an extension. A plan must be filed to the court for approval and must stipulate regular, usually biweekly or monthly, payments of defined sums to the trustee. The trustee then distributes the money to the creditors in accordance with the conditions of the plan, which may not fully satisfy the claims of the creditors.
In the case of a domestic support obligation, the plan must pay all priority claims in full unless a specific priority creditor consents to different treatment of the obligation or unless the debtor contributes all disposable income.
Even if the court has not yet authorized the plan, the debtor must begin making plan payments to the trustee within 30 days after filing the bankruptcy case. The bankruptcy court must schedule a confirmation hearing and determine whether the plan is workable and satisfies the requirements for confirmation outlined in the Bankruptcy Code no later than 45 days following the creditors’ meeting.
The bankruptcy code is complicated and has undergone significant revisions affecting the extent of the chapter 13 discharge. Therefore, in order to understand the extent of the chapter 13 discharge before filing, debtors should speak with knowledgeable legal counsel.
Simply put, once all payments under the chapter 13 plan have been made, the debtor is eligible for a discharge as long as they have met the following requirements: (1) certifies (if necessary) that all domestic support obligations that were due before making the certification have been paid, (2) has not previously received a discharge in a case filed within a specific time period, and (3) has finished an approved course.
With a few exceptions, the discharge frees the debtor from all obligations covered by the plan (per Section 502). Any legal or other actions taken against the debtor to recover the discharged obligations may no longer be started or continued by creditors who were fully or partially covered by the chapter 13 plan.
There are many benefits and relief that people obtain through filing Chapter 13 bankruptcy. The most important aspect of Chapter 13 bankruptcy is that it gives individuals a fresh start and a sense of freedom from their debt. In addition to starting anew, the benefits of Chapter 13 bankruptcy include:
Furthermore, some of the biggest benefits are reflected in the credit reporting. Creditors tend to look more favorable to Chapter 13 bankruptcy vs. Chapter 7, and credit can start to rebuild even while a Chapter 13 case is pending. Finally, the bankruptcy will only stay on filers’ credit reports for no more than seven years.
If thinking about filing for bankruptcy, debtors should speak with a bankruptcy lawyer. They know how their clients feel because it’s their business to help people get out of debt, so they can guide filers through the entire process, whether just seeking some guidance or if they want to file for bankruptcy protection, Chapter 13 bankruptcy lawyers throughout Southern California (including San Bernardino, Los Angeles, and Riverside County) will be able to assist.
Bankruptcy attorneys can offer free initial consultations to help arrange monthly payments, go over the types of bankruptcy available, and other general information regarding bankruptcies.