Most people who file for personal bankruptcy file for either Chapter 7 or Chapter 13. People in California who file for a Chapter 13 bankruptcy are supposed to repay debts over a three- to five-year period. There is an order in which debts must be paid, and while some must be fully paid off in order to complete the bankruptcy, some do not need to be paid at all. Filing puts an immediate stop to creditor activity, including foreclosure, and can lead to a fresh start financially.
What is Chapter 13?
A Chapter 13 bankruptcy is a type of bankruptcy in which debts are reorganized into a payment plan. It allows you to keep your property rather than having it liquidated as may be the case with some property in a Chapter 7 filing. You must have an income above a certain level to qualify for Chapter 13, and your payment plan is administered by a trustee. Child support debts are prioritized. Debts related to property you own, such as for your home and vehicles, must be paid as well. Unsecured debt, such as credit card debt, is only paid if you have disposable income remaining after paying for necessities, such as food and your home.
What happens to your debts?
For your bankruptcy to be completed, you must be current on any child and spousal support obligations. You do not necessarily have to pay off unsecured debts. They can be discharged at the end of your payment plan if you have followed all the rules and made the necessary payments. According to U.S. bankruptcy law certain debts cannot be discharged in a Chapter 13 bankruptcy, such as most student loan debt and some tax debt.
If you are struggling with debt, an attorney might be able to help you determine what your options for debt relief may be and what type of bankruptcy you qualify for. An attorney may also be able to assist you in the process of filing for bankruptcy since errors in filing could lead to delays.