San Diego Bankruptcy: Chapter 13 bankruptcy (the wage-earner’s plan)
Chapter 13 is also called a “wage earner’s plan.” The term “Chapter 13” refers to Title 11 of the United States Code, Chapter 13 therein. This is federal law, made out of Washington D.C. and is applicable to all citizens of the United States and any foreigner with debt held by an American company. When someone says, “I filed a Chapter 13,” they are saying, in essence, “I filed a document in federal court utilizing the laws as written in Chapter 13 of the 11th book of American laws.” This section of law details the debt relief available to people (Chapter 13 is not for businesses) and spells out what must be done to obtain that debt relief.
Chapter 13 puts a debtor on a payment plan of between three to five years. The planned payments are determined similarly to how the Means Test is performed: a debtor’s income is used as the starting point from which are subtracted various permissive deductions. Such deductions include mortgage payments, utilities, car costs, insurance, child care, etc. What is left is called your “disposable income.” This disposable income is then used to pay your unsecured creditors – because your secured creditors get paid first, and they get paid in full. Most often, the unsecured creditors get only a small portion of what they are owed. By law they are required to get more than a Chapter 7 liquidation would provide them, but since that amount is usually nothing, the creditors do better when you file Chapter 13.
Exemptions are still applicable but, unlike liquidation, amounts above the exemption limits are required to be paid to the creditors. A discharge is granted at the end of the plan, provided the payments have been made timely over the course of the plan and support obligations to children are met.
Two other great benefits of the Chapter 13 relate to home ownership. Firstly, arrearage payments may be included in the plan. This prevents the lender from foreclosing. The court simply compels the lender to accept the terms. Secondly, if a junior lien is wholly unsecured, a motion can be brought before the judge which deems the junior lien an unsecured debt. It then gets treated just like a credit card debt or hospital bill. This is called lien stripping and can save debtors ten, if not hundreds, of thousands of dollars.
Car debt may also be restructured through a “cram down,” a process similar to a lien strip. Specifically, if you have been paying off your car loan long enough, you can request that the court deem the amount owed on the vehicle above what the vehicle is then worth to be deemed unsecured debt. The debt is then treated akin to credit card debt and is subject to discharge at the conclusion of the plan.
Chapter 13 is a voluntary filing available anytime, to anyone, provided your unsecured debts are less than about $330,000 and your secured debts are less than about $1 million. Additionally, a person may not have more than one Chapter 13 case open at a time. Finally, a discharge under Chapter 13 is not possible if you received a discharge through a Chapter 7 in the last four years.
Chapter 13 puts a debtor on a payment plan of between three to five years. The planned payments are determined similarly to how the Means Test is performed: a debtor’s income is used as the starting point from which are subtracted various permissive deductions. Such deductions include mortgage payments, utilities, car costs, insurance, child care, etc. What is left is called your “disposable income.” This disposable income is then used to pay your unsecured creditors – because your secured creditors get paid first, and they get paid in full. Most often, the unsecured creditors get only a small portion of what they are owed. By law they are required to get more than a Chapter 7 liquidation would provide them, but since that amount is usually nothing, the creditors do better when you file Chapter 13.
Exemptions are still applicable but, unlike liquidation, amounts above the exemption limits are required to be paid to the creditors. A discharge is granted at the end of the plan, provided the payments have been made timely over the course of the plan and support obligations to children are met.
Two other great benefits of the Chapter 13 relate to home ownership. Firstly, arrearage payments may be included in the plan. This prevents the lender from foreclosing. The court simply compels the lender to accept the terms. Secondly, if a junior lien is wholly unsecured, a motion can be brought before the judge which deems the junior lien an unsecured debt. It then gets treated just like a credit card debt or hospital bill. This is called lien stripping and can save debtors ten, if not hundreds, of thousands of dollars.
Car debt may also be restructured through a “cram down,” a process similar to a lien strip. Specifically, if you have been paying off your car loan long enough, you can request that the court deem the amount owed on the vehicle above what the vehicle is then worth to be deemed unsecured debt. The debt is then treated akin to credit card debt and is subject to discharge at the conclusion of the plan.
Chapter 13 is a voluntary filing available anytime, to anyone, provided your unsecured debts are less than about $330,000 and your secured debts are less than about $1 million. Additionally, a person may not have more than one Chapter 13 case open at a time. Finally, a discharge under Chapter 13 is not possible if you received a discharge through a Chapter 7 in the last four years.
