Los Angeles Lawyer Skilled in Chapter 13 Bankruptcy Matters

How Does Reorganization Work?

Your Chapter 13 bankruptcy proceedings start when your attorney files a bankruptcy petition. This will include information about your assets and liabilities, your financial affairs, proof of credit counseling, and a debt repayment plan that you developed during credit counseling.

The credit counseling you receive must be from an agency approved by the United States Trustee’s office. They can counsel you for free or at reduced rates if you are unable to pay their fee. Among other things, they will help you look at how much you earn. If your income for the six months prior to your bankruptcy filing date is more than California’s median income, you will have to reorganize your debts to repay them over a five-year period. If your income falls below the California median income, you can reorganize your debt to repay creditors over a three-year period.

A trustee will administer your bankruptcy case. His or her first task will be to look over your debt repayment plan. The debt repayment plan will reorganize your debt into three types of claims: priority, secured and unsecured.

Priority claims have to be paid in full unless the creditor agrees to a modification. They include spousal support, child support, and taxes. Secured claims are those in which property, such as a car or furniture, acts as collateral that can be repossessed if you don’t pay off the debt. Unsecured claims are those that are not “secured” by property. Examples include credit card and medical debts. Usually, the reorganization does not require you to repay the full amount of your unsecured debt, but these creditors will need to receive about as much as they would if your non-exempt assets had been liquidated in a Chapter 7 bankruptcy.

How your unsecured debts will be reorganized and how much you have to repay depends on how much disposable income you have and your ability to claim exemptions. For example, if you own a beachfront condo as a vacation home, you can keep it in Chapter 13 bankruptcy, but owning it can have a significant impact on the amount you have to repay creditors.

One benefit of reorganization is that you will be able to make a single payment, rather than juggle numerous debts as you did before filing for bankruptcy. The trustee will examine your record and debt repayment plan to make sure that you can realistically repay your debts according to the plan you’ve made. The plan will be adjusted every year depending on your ability to pay and changes in your living expenses. The trustee collects a single payment every month and distributes the payment to creditors.

Legal Guidance for Los Angeles Residents Facing Bankruptcy