Chapter 13 bankruptcy in California helps those with steady incomes who are struggling financially, to create a plan to repay all or part of their debts. Thousands of people each month file for Chapter 13 Bankruptcy in California. Those wishing to prevent home foreclosure and keep valuable non-exempt property often turn to the type of Bankruptcy known as Chapter 13. These filings account for around 20% of bankruptcy filings in California.
What is Chapter 13 Bankruptcy in California?
Chapter 13 bankruptcy in California is considered a reorganization of debt. While each situation is unique, Chapter 13 is a way to get help catching up on payments of major assets like a home or car without facing a repossession or foreclosure.
Even though it’s possible to file for Chapter 13 Bankruptcy in California on your own, most choose to work with an attorney to ensure a smooth filing process. An attorney is able to explain the long-term consequences of the filing and offer options tailored to that person’s unique situation based on California law.
When a California resident files for Chapter 13, they create a repayment plan which demonstrates how they will pay off both the past-due debts, as well as currently owed debt successfully over the next three to five years. For the majority of plans, the amount paid every month is as much as regular payments, plus an additional amount to catch up on the past due amount.
Filing Chapter 13 Bankruptcy in California
California Chapter 13 filers must first choose the type of bankruptcy, construct a repayment plan, and then complete the repayment plan over the following three to five years.
Key differences exist between Chapter 7 and Chapter 13 bankruptcy. Chapter 7 bankruptcy is a liquidation of assets, while Chapter 13 is considered a reorganization. Rather than losing assets via liquidation, people typically choose Chapter 13 bankruptcy when they want to keep possession of a secured asset, such as a home or car, which has more equity than California bankruptcy exemptions will allow.
Chapter 13 Bankruptcy requires an individual to have a reliable source of income. For most, this income comes from employment wages. However it can also come from sources such as alimony, pensions, or disability payments.
In a Chapter 13 bankruptcy filing, the individual proposes a repayment plan over the next 3-5 years based on their future income. The total amount owed in the repayment plan is typically determined by the California Means Test. When an individual successfully completes the terms of the repayment agreement, the remaining discharge debt is released.
Chapter 13 Bankruptcy Forms in California
Bankruptcy cases in California are typically handled through the Central District of California, the largest bankruptcy court in the U.S.A. Those wishing to file for Chapter 13 Bankruptcy in California must fill out the Chapter 13 Petition Package, available online from The Central District of California. The Chapter 13 Petition Package contains the requirements and forms to file a voluntary Chapter 13 bankruptcy case in California. The forms are available online.
Educating yourself via research can be a great place to start. However, an attorney is your best source of information in regards to the complex legal process of filing for bankruptcy. The Central District of California Court encourages those who do not have an attorney to educate themselves via the court’s “Don’t Have an Attorney” page.
California Chapter 13 Bankruptcy Exemptions
Exemptions determine how much someone must pay to cover unsecured debts when filing Chapter 13. Chapter 13 allows individuals to keep nonexempt property while paying its value to un-secure creditors through a repayment plan. While a Chapter 7 Bankruptcy plan requires the debtor to liquidate many of their personal assets.
California has its own systems for Chapter 13 exemptions. Some states allow for individuals to choose between using Federal Bankruptcy Exemptions, or the State Exemptions. However, California does not allow that option. The State of California requires you to choose between its own two systems. System 1 is generally better for those with a substantial amount of home equity. Separately, System 2 is more ideal for those who have valuable property that is not real estate.
Take note, some States consider bankruptcy-only exemptions systems unconstitutional. These States may not allow their use by those filing outside of California. Using California exemptions via domicile rules.
California Chapter 13 Bankruptcy Rules
The rules for filing for Chapter 13 bankruptcy can be found in the court’s Chapter 13 Petition package. (Download Here)
“Debtors”, must complete a financial counseling course within the 180 days before filing for bankruptcy. At this point the “debtor” will receive a certificate of completion. When filing the bankruptcy plan, the debtor must present this certification. The first filing includes a collection of forms and the filing fee. The debtor must file Official Form 121, Official Form 101, a master mailing list of the debtor’s creditors. From that point, the debtor has 14 days to file the remaining forms. These remaining forms include the credit counseling certificate, debt repayment plan, as well as other forms.
California requires people to use one of its own exemption systems. The State also has special rules for married couples filing jointly for bankruptcy. Unlike several others states, California prevents married couples from receiving duplicate exemptions when filing jointly. California also has rules regarding the timing of filing. You can’t receive a Chapter 13 discharge in California, if you have gone through a Chapter 7 discharge in the last 4 years. Or if you have gone through a Chapter 13 discharge in the last two years.
Reverse Mortgages in Chapter 13 Bankruptcy in California
A reverse mortgage is a loan available to individuals who are over the age of 62, and own a home their home outright. Reverse mortgages are also available to individuals over 62 who only owe a small mount of mortgage debt. In a reverse mortgage, a bank makes payments to a homeowner based on equity in the home.
Because Chapter 13 allows for exemptions to protect homes and the equity in homes, your property and ability to collect reverse mortgage payments may be safe.
However, the equity in your home may still determine the amount of money you owe. This can often make your repayment plan payments higher. Some individuals choose to wait to file for bankruptcy until the reverse mortgage payments reduce the amount they will owe. Thus reducing the amount of their monthly plan payments.
Chapter 13 Bankruptcy On Unsecured Debt in California
In Chapter 13, debt is divided into categories: secured debt, priority unsecured debt and general unsecured debt.
Secured debt is debt that is secured by an item with value, like a home or vehicle. Unsecured debt are debts without collateral. Priority unsecured debt typically includes things like child support and some tax debts.
In a chapter 13 bankruptcy, unsecured creditors must receive the same amount they would have got in a Chapter 7 Bankruptcy. This amount is typically equal to the value of non-exempt property.
Choosing a Mortgage Company After or During Your Chapter 13 Bankruptcy in California
Filing for Chapter 13 isn’t a death sentence when it comes to your ability to purchase a new home. Because Chapter 13 focuses on giving people a chance to catching up on past debt, many people are able to buy homes within three to five years.
Our team specializes in guiding individuals who’ve filed for bankruptcy through the process of obtaining a home loan. We walk people through every step of the process for how they can get a fresh start in a home of their own. Contact us today to learn about your options.
Published (April 26th, 2018)
Author: Peoples Bank Mortgage