Chapter 13 Bankruptcy Lawyer in Bakersfield

When someone files for bankruptcy under Chapter 13 of the Bankruptcy Code, their aim is to have the opportunity to repay some or all the debts in their name in better terms (for example, with lower or no interest). Unlike Chapter 7, which involves liquidation of assets, this process involves restructuring debts, which allows the debtor to use whatever income they may have in the future to pay off the creditors. Filing Chapter 13 bankruptcy is thus applicable for a debtor who has a regular income, and thus can afford to request for such adjustments or reductions.

The United States Bankruptcy Code gives the debtor a ceiling of five years, within which the creditors must be paid back. While the attorney will safeguard your interests, the entire process is carried out under the supervision of the courts.

Chapter 13 Overview

An individual who is badly in debt can typically file for bankruptcy either under Chapter 7 (liquidation, or straight bankruptcy) or Chapter 13 (reorganization). In some cases, options may also include Chapter 12 (family farmer reorganization) and Chapter 11 (reorganization of a company, or an individual debtor whose unsecured debt exceeds $400,000 and/or whose secured debt exceeds $1,200,000).

Debtors may also be forced into bankruptcy by creditors in the case of an involuntary bankruptcy, but only under Chapters 7 or 11. However, in most instances, the debtor may choose under which chapter to file. In the case of an involuntary bankruptcy, the debtor may also choose to convert from the forced Chapter 7 or 11 proceeding into a proceeding under another chapter.

The debtor's financial characteristics and the type of relief sought plays a tremendous role in the choice of chapters. In some cases, the debtor simply cannot file under Chapter 13, as they lack the disposable income necessary to fund a viable Chapter 13 plan. Furthermore, Section 109(e) of Title 11, United States Code sets forth debt limits for individuals to be eligible to file under Chapter 13: Unsecured debts of less than $383,175, and secured debts of less than $1,149,525.

Under Chapter 13, the debtor proposes a plan to pay their creditors over a three-to-five-year period. This written plan details all the transactions (and their durations) that will occur, and repayment according to the plan must begin within 30 to 45 days after the case has started. During this period, creditors cannot attempt to collect on the individual's previously incurred debt, except through the bankruptcy court. In general, the individual gets to keep their property, and their creditors end up with less money than they would, were the amount given to the debtor to continue collecting interest, allowing the debtor to find a way to pay the amount owed without losing their assets entirely.

Chapter 13 Advantages

The advantages of Chapter 13 over Chapter 7 include the ability to: 

• Stop foreclosures, although a foreclosure would be reinstated upon completion of the bankruptcy
• Achieve a super discharge of debts not dischargeable under Chapter 7
• Value collateral
• Bifurcate the security interest of creditors in certain property that creditors are either charging too much interest for, or are over-secured, or both, and leading to a cram down modification of the debt
• Prevent collection activities against non-filing co-signers (co-debtors) during the life of the case

Chapter 13 Disadvantages

The disadvantage of filing for personal bankruptcy is that, under the Fair Credit Reporting Act, a record of this stays on the individual's credit report for up to seven years (up to 10 years for Chapter 7). You may obtain new debt or credit (credit cards, auto, or consumer loans) after 12 to 24 months, a new FHA mortgage loan 24 months after discharge and Fannie Mae and Freddie Mac loans after 36 months. But, during the pendency of a Chapter 13 case, the debtor is not permitted to obtain additional credit without the permission of the bankruptcy court. Moreover, creditors may not be willing to risk lending money to such an individual. However, this disadvantage is not unique to Chapter 13 — it may also apply to individuals currently in a Chapter 11 case or Chapter 12 case, or those who are in or have recently been in a Chapter 7 case.

At Schwartz Law, our Bakersfield Chapter 13 bankruptcy attorney can be reached online or via phone at (661) 218-1118.