The word “bankruptcy” tends to carry negative connotations for many Americans, as the term signifies severe financial hardship. The reality is that bankruptcy filing can provide valuable relief from debt collection and allow some debtors to avoid foreclosure and asset seizure from creditors. If you are thinking about how to overcome your current financial difficulties, the right Orange County bankruptcy lawyer can be a tremendous asset in your situation. A seasoned attorney can help you determine what type of bankruptcy filing is most suitable for your situation. In many cases, Chapter 13 bankruptcy offers the most flexibility.
Chapter 13 bankruptcy can offer several substantial benefits compared to the other types of bankruptcy options available in the US. However, navigating the filing process can be incredibly difficult, and Chapter 13 bankruptcy is not for everyone. If you are unsure whether Chapter 13 bankruptcy would be worth pursuing in your situation, read the following information before contacting an Orange County bankruptcy lawyer for specific advice about your situation.
Benefits of Chapter 13 Filing
The most commonly used forms of bankruptcy in the United States include Chapter 7, Chapter 11, and Chapter 13. Out of these three options, Chapter 13 tends to provide the most flexibility to the filing party, generally allowing them to avoid the negative aspects of other forms of bankruptcy. Namely, they are allowed to keep their property as long as they agree to a structured debt repayment plan. Unlike Chapter 7, which requires the debtor to liquidate all qualifying assets to provide a resolution to their creditors, Chapter 13 protects the debtor’s property in most cases.
Chapter 13 bankruptcy will place your financial matters in the hands of a designated trustee, and most Chapter 13 trustees are quite flexible when it comes to accommodating a debtor’s repayments. While it will take much longer to completely discharge a debt under Chapter 13 (typically at least five years), the debtor will be able to breathe a bit easier knowing they will not have to sell their house, their car, and their other possessions to repay their debt.
Once you complete your Chapter 13 repayment plan, creditors cannot obligate you to repay any outstanding debts in full. You get to keep any property on which you make payments, and you may even be able to secure approval for additional lines of credit within one to three years after filing.
Chapter 13 bankruptcy filing also places an automatic stay on your property and assets that will prevent creditors from persisting with their collection actions. This alone can be a tremendous relief as dealing with creditors is rarely pleasant or easy.
Drawbacks of Chapter 13
While Chapter 13 bankruptcy offers significant benefits compared to the other types of bankruptcy filings, there are some substantial drawbacks to the process. Firstly, it can take five years or more for you to complete repayment of debts restructured under a Chapter 13 resolution. Additionally, the record of your Chapter 13 filing will remain on your credit report for up to ten years, potentially interfering with your ability to qualify for some types of financing. You will also lose all of your credit cards, and it may be quite a long time before you can qualify for a new credit card.
The terms of your Chapter 13 resolution may allow you to keep your property, prevent foreclosure on your home, and prohibit creditors from continuing collection actions against you, but you will need to pay your debt repayments out of your “disposable” income. This means any income you earn after paying your necessary living expenses and bills will be subject to forfeiture under a Chapter 13 resolution. The trustee assigned to your Chapter 13 case will have discretionary power to determine what amount of your income qualifies as “disposable,” so your repayment terms may be less flexible than you initially expect.
Due to the impact your Chapter 13 filing will have on your credit report, it will be virtually impossible for you to secure a mortgage unless you already have one. Additionally, your Chapter 13 resolution will not release you from any preexisting alimony or child support obligations you currently face. The trustee handling your case will likely factor these obligations into determining how much you must repay toward your Chapter 13 resolution each month. Chapter 13 bankruptcy will not release you from student loan debt, either.
Chapter 13 vs. Chapter 7 Bankruptcy
The main advantage to pursuing a Chapter 13 bankruptcy resolution is the fact that this form of bankruptcy generally offers much more flexibility and freedom than a Chapter 7 bankruptcy resolution. Under Chapter 7, you will need to liquidate most of your assets and sell off property to pay a lump sum resolution. You may end up paying much less than you actually owe, and creditors will no longer be able to pursue collection activities against you, but this comes at the cost of liquidating most of your property, including selling your house.
Chapter 7 may appear to offer a “fresh start,” but the reality is that the record of your Chapter 7 bankruptcy status will continue to cause problems for years to come. Chapter 7 may put a stop to foreclosure, repossession, and collection actions against you and provide permanent relief in the form of a bankruptcy discharge, but it does not erase unsecured debts, will significantly impact your credit score, and you will lose a significant amount of the property you own in the process.
Put simply, Chapter 7 bankruptcy focuses on liquidation and discharge, while Chapter 13 is an organized restructuring of your outstanding debt. Both options can provide financial relief, but they carry long-term consequences you must acknowledge before pursuing either option. In any case, an experienced bankruptcy attorney is your best resource to determine whether Chapter 13 is right for you.
Do I Need a Lawyer for Chapter 13?
Technically you do not require legal representation to pursue a Chapter 13 bankruptcy filing. However, having an experienced bankruptcy attorney represent you during this process is tremendously helpful. Filing for bankruptcy will require you to produce a substantial amount of financial records, some of which you may not know how to obtain. Additionally, the filing process itself consists of filing many different types of paperwork and navigating complex procedural requirements.
Ultimately, hiring an experienced Orange County bankruptcy lawyer can streamline your Chapter 13 filing process significantly. Your legal team will help you gather all of the records and supporting documentation you will need to complete the filing process. They will also help you create your proposal for a repayment plan that allows you to keep your property and manage your everyday living expenses without creating undue financial strain on you and your family. Additionally, a good bankruptcy attorney may also connect you with support services such as a budget advisor or financial counselor to help you manage your finances more closely to avoid further problems with creditors in the future.
Can I Change Lawyers During a Chapter 13?
If you hire a bankruptcy attorney to represent you and you find their performance unsatisfactory for any reason, you have every right to choose a new lawyer to represent you. However, you must bear the cost of representation in mind if you are considering changing lawyers. You will have already paid some legal fees to the original lawyer, and hiring a new one will incur even more legal fees. They will essentially need to work very quickly to get up to speed with your case and review the previous lawyer’s actions.
Ultimately, while you can change lawyers during a Chapter 13 case, doing so is often more trouble than it is truly worth unless your original attorney has committed some type of legal malpractice or severely hampered your case in any way.
How Soon Can You File a Chapter 13 After a Chapter 13 Discharge?
There is a two-year time limit before you can file a Chapter 13 case after having a previous Chapter 13 case discharged. Additionally, there is a six-year time limit before you can file for Chapter 7 bankruptcy after a Chapter 13 discharge.
How Do I Get a Chapter 13 Hardship Discharge?
After you have secured a Chapter 13 resolution, you must abide by the terms of this resolution to the letter, especially when it comes to making your required repayments. If you miss any payments or fail to abide by any terms of your Chapter 13 resolution, the court may remove the automatic stay that prohibits creditors from pursuing further collection actions against you. However, the bankruptcy laws of the United States acknowledge the fact that some life events can cause unexpected financial hardship beyond an individual’s control.
If you are unable to meet your Chapter 13 resolution obligations due to forces beyond your control, such as the appearance of a medical condition or a serious injury that prevents you from working, your bankruptcy attorney can assist you in petitioning the bankruptcy court for a hardship discharge of your outstanding debt. You should understand the requirements for hardship discharge:
- The reason or reasons for your inability to pay your debt must be completely beyond your control.
- Your creditors must have already received as much compensation as they would have received through a Chapter 7 bankruptcy resolution.
- Modification of your current Chapter 13 repayment plan is unfeasible given your new circumstances.
If you meet these requirements, you may qualify for a hardship discharge. However, if your change in circumstances involves a temporary loss of employment, a reduction in pay or other circumstances that do not involve a serious medical condition that prevents you from repaying your debt, the alternative to seeking a hardship discharge would likely be to convert your case to a Chapter 7 bankruptcy filing.
Modifying Your Chapter 13 Resolution
When you file for Chapter 13 bankruptcy, your bankruptcy attorney will help you propose a repayment plan that is fair, reasonable, and feasible given your circumstances. The bankruptcy court must review and approve this plan before your Chapter 13 bankruptcy filing is granted and you are no longer subject to collection actions from your creditors. Since your Chapter 13 status could last three to five years or longer, it is generally wise to assume that your circumstances are likely to change during this time, sometimes changing in such a way that you are left unable to meet the terms of your originally proposed repayment plan.
If your circumstances change after obtaining a Chapter 13 bankruptcy resolution, the current bankruptcy laws allow for you to modify your repayment plan under certain conditions. This may include altering the amount you are required to pay each month and/or extending your repayment term. The judge overseeing your case may allow you to reduce how much you must pay toward unsecured and nonpriority debts, such as unpaid medical bills, personal loans, and credit card balances.
It is also possible to modify your Chapter 13 filing before the court reviews and approves it. In most cases, a Chapter 13 filing will take anywhere from two months to over a year before the court approves your proposed repayment plan. During this time, you may experience life changes that render your original proposal ineffective or unfeasible. If this occurs before confirmation, your bankruptcy attorney can help you file an amended repayment plan proposal that accurately reflects your new situation. After confirmation, your bankruptcy attorney will need to assist you in filing a motion for modification of your plan with the bankruptcy court.
Even if your proposed modification is approved, there are some limitations you will face when it comes to your repayment plan. Priority debts such as secured debts and child support will remain your obligation. Additionally, if your original plan was sufficient for repaying your debts, you may not qualify for modification unless you are willing to liquidate certain assets, such as selling your home. However, if your original Chapter 13 repayment plan included repayment toward non-priority and/or unsecured debts, a judge may allow you to reduce your payment amounts on these debts. If modification does not work for your situation, your bankruptcy attorney will likely advise you to convert your filing to a Chapter 7 case.
How to Determine If Chapter 13 Bankruptcy Is Right for You
Chapter 13 bankruptcy can allow you to avoid collection actions, keep most of your property, and repay your debts in a more manageable way. However, this type of bankruptcy filing isn’t for everyone. You’ll need to be earning regular income to qualify in the first place, and the types of debts you owe will also function in different ways throughout the filing process. The bankruptcy courts of the US also place limits on the amount of secured and unsecured debt you owe if you wish to pursue a Chapter 13 filing. As of 2020, the amount of your unsecured debts, including credit card balances, unpaid medical bills, and personal loans, must be less than $419,725. The amount of your secured debt, such as car loans and your mortgage, cannot be more than $1,257,850.
If you are unsure whether Chapter 13 bankruptcy would be the best option for you, consult with an Orange County bankruptcy lawyer as soon as possible to begin a financial review process. Your attorney will help you conduct a thorough review of your debts and help you gather the financial records and other information you need. Some of the things you can expect your bankruptcy attorney to help with include:
- Creating a complete list of every creditor you owe and how much you owe to each one.
- Solid evidence of your income.
- A complete list of all your property, assets, and valuable possessions.
- Your most recently filed tax returns.
- Complete and accurate descriptions of your living expenses, including rent or mortgage payment amounts and other monthly living expenses such as the cost of transportation and home utilities.
This information will be crucial for your Chapter 13 filing, and you can expect an experienced bankruptcy attorney to guide you through each phase of the process. Your attorney will review all of your financial information with you to determine whether Chapter 13 bankruptcy filing will provide the relief you need or if you should pursue Chapter 7 instead.
Find Your Orange County Bankruptcy Lawyer Today
If you feel like you are being constantly harassed by creditors and are worried about losing your home, it’s important to contact an experienced Orange County bankruptcy lawyer as soon as possible. At the Law Office of Christopher P. Walker, we understand the stress and frustration that debt can cause any family. Our goal is to help you overcome your financial difficulties as seamlessly as possible while minimizing the amount of property and assets you need to liquidate.
We have years of experience providing comprehensive legal counsel to clients facing bankruptcy proceedings, including Chapter 13 bankruptcy. This form of bankruptcy can provide much more flexibility than Chapter 7 and allow you to keep most of what you own, but you need legal guidance for the process. Contact the Law Office of Christopher P. Walker today to schedule a consultation with our team and find out how we can assist you with the Chapter 13 filing process.