Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows you to keep your property and pay all or a portion of your debts out of future income. Chapter 13 bankruptcy is often selected for the ability to keep and use property, including nonexempt property that would otherwise be sold in chapter 7 bankruptcy. Chapter 13 bankruptcy is also used to save homes from foreclosure and cure delinquent mortgage payments over a period of years. Unlike in chapter 7 bankruptcy where a discharge is usually received within a few months, in chapter 13 bankruptcy a discharge is only received upon the completion of the chapter 13 plan (ie. once all payments have been made pursuant to the chapter 13 plan).
Learn more about our Chapter 13 bankruptcy attorney in Sacramento.
Who Can File For Chapter 13 Bankruptcy?
1) Individual with regular income
2) Debt limits:
- $394,725 non-contingent, liquidated, unsecured debt
- $1,184,200 non-contingent, liquidated secured debt
Chapter 13 bankruptcy has some restrictions on who can file. First, to qualify for Chapter 13 bankruptcy you must be an “individual with regular income.” To be an individual with regular income you must be an individual with income sufficiently stable and regular so as to enable you to make payments under a Chapter 13 plan. Due to this requirement Chapter 13 bankruptcy is sometimes referred to as the “wage earner” reorganization, but that’s not necessarily the case. To qualify for Chapter 13 bankruptcy you only need to have regular income, not necessarily a “wage.” Second, the amount of your debt can disqualify you from filing for Chapter 13 bankruptcy. Chapter 13 bankruptcy has two debt limits: (1) you can’t have more than $394,725 of non-contingent, liquidated, unsecured debt or (2) $1,184,200 of non-contingent, liquidated, secured debt. (The secured debt can be measured by the value of the secured asset rather than the amount of the claim. For instance, a $200,000 claim secured by a house worth $150,000 would be measured in Chapter 13 as a $150,000 secured claim and $50,000 unsecured claim.) Most people will not have difficulty meeting these debt limits.
Chapter 13 Plan Confirmation
For your chapter 13 plan to be confirmed by the bankruptcy court it must satisfy several requirements found in 11 U.S.C. 1325(a). First, the plan must comply with the bankruptcy code (Title 11 of the United States Code). Second, the chapter 13 bankruptcy good faith requirement must be met (the plan must be proposed in good faith and not by any means forbidden by law). Third, the chapter 13 bankruptcy best interests of creditors test must be satisfied. Fourth, the chapter 13 bankruptcy plan must appropriately treat all secured claims. Fifth, the chapter 13 bankruptcy plan must be feasible. In addition, the debtor must have paid all charges and fees; domestic support obligations required by judicial or administrative order, or by statute; and filed all federal, state, and local tax returns for the 4 years before the petition was filed with the court. Lastly, if a creditor objects to the chapter 13 plan, the plan must satisfy the “disposable income” test.
Optionally, a chapter 13 bankruptcy can cure defaults on long-term debts while the debtor remains in possession of the property.
Best Interests of Creditors Test
When someone files for Chapter 13 bankruptcy in Sacramento their plan can only be confirmed if general unsecured creditors receive at least what they would have received in a Chapter 7 bankruptcy liquidation. (See 11 U.S.C. §1325(a)(4)). This requirement is known as the “best interests test.” It ensures that general unsecured creditors will not be harmed by the use of Chapter 13 bankruptcy over Chapter 7. The test requires that your Chapter 13 plan give general unsecured creditors payments with a present value equal to the value of your nonexempt property. That means that your Chapter 13 plan will give your general unsecured creditors the value of your nonexempt property as of the petition date. To accomplish this, your plan will include that petition-date value plus interest to compensate them for receiving the petition-date value over 3-5 years in chapter 13 bankruptcy.
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