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What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy has a few nicknames, including“debt consolidation” and “consumer reorganization”. It is designed for people who have serious financial problems such as they want to stop a foreclosure and stay in keep their home, or they are facing a repossession but want to keep the car, or they just want to make their debt manageable by consolidating all of their debts into a 36 or 60 month plan.  Chapter 13 can be a godsend to many people who are in trouble and do not know where to turn. Having a highly competent bankruptcy attorney can really make their lives a lot easier and stop the insanity so they can obtain some semblance of calm and peace back in their lives.

Almost anybody with a regular source of income can qualify under Chapter 13, whether they have a job or they’re self-employed. To put forward a realistic plan and have it confirmed by the court all they have to do is show the court they have sufficient income to make a monthly plan payment. There are some restrictions such as if the person had too much secured or unsecured debt although that rarely happens.

Among the considerations one has to make before filing under Chapter 13 would be to determine if they are eligible to file under Chapter 7 because anyone who is above the median income and failed the “means test” for a Chapter 7 will have to file under Chapter 13 anyway. Whether or not Chapter 13 is a good idea will depend on the type of debt they have. If they only have credit card and other unsecured debt, then they should file under Chapter 7 so they can just make those debts go away permanently. Someone with car loans, IRS debt or who is behind on their mortgage or any combination of those should really try to go for Chapter 13 because it would afford them the same bankruptcy protection as a chapter 7 but they could consolidate their debt and keep all of their assets and get their debts under control over a reasonable period of time.

Alternatives to Bankruptcy and How to Weigh the Benefits?

Many people choose to go into debt consolidation programs which work out some times but not others. The problem with a debt consolidation program like that is that the debtor still has to pay back a certain amount of debt but there is no guarantee that all the creditors will go along with the program. Not only that but everything would stay on their credit report for seven years after the date of the last payment made on the debt consolidation program while someone under a Chapter 13 plan would have most delinquencies removed seven years from the date the case was filed. If someone had some money to settle the debts up front, then they could negotiate settlements with each creditor for anywhere from 30-50% of the balance. That sounds good in theory but if you are not successful with all of the creditors, then you will still have problems on your hands with the creditors that did not settle. Also, you will have taxable income to pay on the money saved because that is called cancellation of debt income and the IRS will want to be paid a portion of what you saved. So debt consolidation and debt settlement have some good points but the bottom line is you can probably do better in Chapter 13 if you have competent representation.

Is it Possible To File Chapter 13 With Some Creditors But Not Others?

In bankruptcy, the debtor has to list all of their assets and all of their debts. However, if someone is comfortable with their car loan, many times they may be able to exclude that from the chapter 13 plan and just continue paying it the same as they were. There are situations in which it is possible to discriminate with one creditor although it is rare.

For more information on Chapter 13 Bankruptcy, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling (858) 278-2800 today.

San Diego Bankruptcy Guide by Steven Bliss

Bankruptcy Basics
In California

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