Q: Can Chapter 13 bankruptcy save my home from foreclosure?
A: Yes. Once your attorney files your Chapter 13 petition, the court will impose an automatic stay on all collection activities by creditors. This will stop the foreclosure until the court either approves or rejects your repayment plan. If your Chapter 13 plan is approved, you will be allowed to catch up on late mortgage payments over time. Over the course of your 3-5 year plan, you will need to pay your regular mortgage payments, plus catch up on any payments that are in arrears (behind).
Your lender is bound by the Chapter 13 plan and cannot foreclose on your home as long as you continue making the payments required under your plan. Chapter 13 bankruptcy is very helpful for people who need time to catch up on late mortgage payments. Speak with a bankruptcy attorney to find out if Chapter 13 is the right solution for saving your home.
Q: What if I have a second or third mortgage on my home?
A: If your equity in your home is less than the amount you owe on your first mortgage, a Chapter 13 bankruptcy can remove most or all of the second and/or third mortgage (this is referred to as a “lien strip”). The second and third mortgages will be re-categorized as unsecured debt (since your home no longer has the necessary equity to secure the debt). Unsecured debt is last priority in bankruptcy. Typically unsecured creditors are paid a fraction of what is owed. Once the Chapter 13 plan is completed, remaining unsecured debts are wiped out.
Q: What will happen to my car if I file Chapter 13 bankruptcy?
A: If you file a Chapter 13 bankruptcy petition, the court will impose an automatic stay. This stops all collection activities by creditors, including car repossessions. If you are behind in your car payments, you may be able to keep the car if you continue making your regular payments and catch up on the late payments over the course of your 3-5 year repayment plan. As long as you make the required payments under your Chapter 13 plan, your car cannot be repossessed. If your car has already been repossessed and you want to file Chapter 13 bankruptcy, contact a bankruptcy attorney as soon as possible. You may be able to get your car back if you can make your regular monthly payments and catch up the late payments under your repayment plan.
Q: What if my car is worth less than the amount of my car loan?
A: Cars lose value very quickly. Often, people owe more on their car loan than what their car is worth. Chapter 13 bankruptcy may be able to reduce the amount of your loan by doing a “cram down.” The bankruptcy court will cram down the amount of your loan so that it is equal to the value of the car. The court will also reduce the interest rate on the loan (usually to about 3.4%).
The court will cram down your car loan only if you bought your car more than 2 ½ years (910 days) before filing for Chapter 13 bankruptcy. In addition, your payments on a car loan that has been crammed down must be completed during your 3-5 year repayment plan. In other words, you will have to pay off the reduced loan amount before the end of your Chapter 13 plan.
After the cram down, any remaining money owed on the loan is recategorized as an unsecured debt. Unsecured debt is last priority in bankruptcy. Typically unsecured creditors are paid a fraction of what is owed. Once the Chapter 13 plan is completed, remaining unsecured debts are wiped out.
Q: How much of my debt will I have to repay under my repayment plan?
A: Priority debts such as alimony, child support, certain taxes, and wages owed to employees must be paid in full.
If you plan to keep a home, vehicle, or other property that is collateral for a secured loan, you will have to make your regular payments and catch up on any late payments over the course of your 3-5 year repayment plan.
The amount repaid toward your unsecured debt will vary for each person. The court will look at your income and will deduct certain “allowable” living expenses and payments toward your secured debts. Remaining income is called “disposable income.” You must use all of your disposable income to repay your unsecured debts (such as your credit cards and medical bills). Unsecured debts do not always have to be repaid in full. Usually, unsecured creditors are repaid only a fraction of what is owed.
If you pay all of your disposable income toward your unsecured debts for the length of your 3-5 year repayment plan, any remaining unsecured debts eligible for discharge will be wiped out. In some situations where a person has a high amount of disposable income, they may be required to repay all of their unsecured debt.
Q: How long will my repayment plan last?
A: The length a Chapter 13 repayment plan depends on a person’s current monthly income. This amount is calculated by averaging the person’s income for the 6 months prior to filing bankruptcy. The person’s income is then compared to the median monthly income for households of the same size in California. If the person’s income is more than the median state income, their repayment plan must last for 5 years. If the person’s income is less than the median state income, they may use a 3 year repayment plan subject to the court’s approval.
Q: What happens if I miss making payments to the trustee?
A: If you miss scheduled payments to the trustee, the trustee will petition the court to dismiss your case. If your case is dismissed, you will owe your creditors the current balance of your debts plus the interest that stopped accruing while you were in bankruptcy.
For this reason, If you run into financial trouble while making payments under a Chapter 13 plan, you must communicate with the court and your attorney. If you can no longer afford the scheduled payments, the trustee may allow you to modify your Chapter 13 plan or convert to a Chapter 7 bankruptcy.
Q: Can I still use my credit cards if I am going to file Chapter 13 bankruptcy?
A: You should stop using your credit cards once you know you are going to file for Chapter 13 bankruptcy. After filing bankruptcy, you cannot use your credit cards or incur any new debt without receiving permission from the bankruptcy trustee who is overseeing your case.
Q: How much does it cost to file Chapter 13 bankruptcy?
A: Attorney’s fees for filing Chapter 13 bankruptcy are set by the court. Currently, the fee is $3,300 and the court filing fee is $274. 10.
Q: If I am married, do I have to file Chapter 13 bankruptcy jointly with my spouse?
A: No, you may file alone or jointly. However, because California is a community property state, debts incurred during marriage are usually considered to be community debts even if the debt is in the name of only one spouse. If you file alone, creditors may still look to your spouse for repayment of community debts. If you are married and are considering Chapter 13 bankruptcy, contact a bankruptcy attorney to discuss whether it would be more beneficial for your situation to file alone or jointly with your spouse.
Call San Diego Law Firm for bankruptcy help
If you have a regular income but are struggling with your debts and facing debt collectors, a Chapter 13 plan may be a good choice for you. Please call San Diego Law Firm today to schedule your fee consultation and find out if a Chapter 13 bankruptcy is right for you.