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CHAPTER 13 REORGANIZATION
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Bankruptcy Learning Center
Our online learning center provides quick access to valuable information contained in our web
site, California and Federal Codes, Court web sites and other legal sources of information.
What is Chapter 13? Chapter 13 is one method under the Bankruptcy Code to obtain relief from your creditors while
providing a fair means to pay them back as much as you can. It allows you to keep some or all of your property during the
time you are paying creditors, and permits you to modify some contract payments and interest rates. Your plan can
eliminate late charges and penalties and allow you to extend payments on some of your debts. Chapter 13 has gained
widespread acceptance as an attractive alternative to straight bankruptcy (Chapter 7).
Why do people file Chapter 13? Chapter 13 is often filed by people who are facing foreclosure on their home. In a
Chapter 13, an individual can stop a foreclosure and pay back the delinquent mortgage payments over an extended period
of time. A debtor may also be able to eliminate and remove 2nd Trust Deeds on their real property if the amount of the lien
exceeds the value of the home. This lien removal is not automatic and requires special motions to be filed in the bankruptcy
case. Chapter 13 is also filed by people who may not qualify to file a Chapter 7 bankruptcy (See Means Test).
Who can file Chapter 13?
To file a Chapter 13 bankruptcy case, you must be an individual (or a husband and wife filing
jointly). If you own your own business as a sole proprietor or partner, you can include all business debts on which you
have personal liability. You have to file your case in your name, however, and not in the name of the business, because a
business entity (corporation / partnership) cannot file for Chapter 13 bankruptcy.
 What is a Chapter 13 Plan? A person who files under chapter 13 is called a
Chapter 13 debtor. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. Chapter 13 plans usually
extend over a period of 3 to 5 years. The plan must be approved by the court to become effective. If the court approves the debtor’s plan, most creditors will be
prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the chapter 13 trustee,
who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the
debtor is released from liability for the remainder of his or her dischargeable debts.
Is Chapter 13 different from debt consolidation?
Chapter 13 differs from private debt counseling and consolidation in
that the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example
, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor's property, to force unsecured
creditors to accept a chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from unpaid portions
of debts. Private debt consolidation services have none of these powers. You do not qualify for Chapter 13 bankruptcy if
your secured debts exceed $1,010,650 or your unsecured debts are more than $336,900. For example, if you owe over a
million dollars on your home, you may not be able to file for Chapter 13 bankruptcy if you have other secured debts.
A People’s Choice can save you hundreds of dollars by preparing your
bankruptcy documents instead of an expensive bankruptcy attorney!
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