Bankruptcy is the last resort for fixing overwhelming financial woes. Chapter 7 bankruptcy (liquidation) is the fastest option and can be completed in about four months. However, many people in Rancho Cucamonga and throughout Southern California either do not qualify or prefer reorganization to liquidation. While chapter 13 bankruptcy can help you control debt and save assets, it takes commitment, and success depends on you. Below are some tips and steps to help you survive Chapter 13 bankruptcy and move forward financially.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy in Rancho Cucamonga is a legal process that allows individuals with regular income to reorganize their debts. Sometimes referred to as a “wage earner’s plan,” it requires that you create a repayment plan to pay off creditors over three to five years.
Under Chapter 13, you propose a repayment plan to the court that outlines how you will repay the debt during the repayment period. The court must approve the plan, and it must be realistic. This means you must have enough income to make the proposed payments.
Once the repayment plan is approved, you pay a court-appointed trustee, who distributes the funds to the creditors according to the plan. During this period, you are protected from creditor collections, including foreclosure or repossession, as long as you make the payments under the plan.
At the end of the repayment period, any remaining debts included in the plan may be discharged (wiped out). However, some debts, such as certain tax debts, alimony, child support or student loans, may not be discharged.
How can Chapter 13 Bankruptcies Fail?
If you have already been struggling with finances for years, filing for bankruptcy can be your best next step. It can bring relief from the burden of debt, but only if you survive Chapter 13 bankruptcy by following through on the plan.
Here are some common reasons Chapter 13 bankruptcies may fail:
- Failure to make payments – If you cannot make the required payments or fall behind on the payment plan, the bankruptcy trustee or the creditors can file a motion to dismiss the bankruptcy.
- Inability to complete the payment plan – If you make the required payments initially but cannot complete the payment plan due to unforeseen circumstances, such as job loss or medical issues, your Chapter 13 may fail.
- Inaccurate or incomplete information – For a Chapter 13 bankruptcy to be successful, you must provide accurate and complete information about your debts, assets, and income. If there are errors or omissions in the bankruptcy petition or payment plan, it can result in the court dismissing your bankruptcy.
- Change in circumstances – If you experience a significant change in financial circumstances, such as an increase in income, inheritance, or lottery winnings, the payment plan may need to be modified. Failing to report such changes or seek a modification may result in the bankruptcy failing.
- Lack of commitment – You must be committed to the plan to survive Chapter 13 bankruptcy. Payment plans last three to five years. The judge may dismiss the bankruptcy if you lack the commitment or discipline to follow through on the payment plan.
What Happens When Bankruptcy Fails
There are several possible outcomes when a bankruptcy plan fails, depending on the circumstances.
- Dismissal – If the court dismisses your case, it has terminated the case without wiping out (discharging) your debts.
- Conversion to Chapter 7 – If the court converts your Chapter 13 case to Chapter 7 bankruptcy, your plan to pay off creditors over time has failed. The trustee will liquidate your non-exempt assets and pay off debts. This can happen if your income decreases significantly during the plan.
- Modification of the Plan – If you are struggling to make plan payments, you can request a change to the plan. This can involve reducing the monthly payment amount, extending the plan’s length, or reducing the debt that needs to be paid off.
- Discharge Denied – If you don’t comply with the court’s orders or make false statements in the bankruptcy documents, the court may deny you a discharge of debts. This means that you will still be responsible for paying off debts even though you have gone through the bankruptcy process.
If your bankruptcy is dismissed or the discharge is denied, creditors may continue collection attempts. If steps for foreclosure or repossession began before your bankruptcy case, they might continue the process.
Tips for surviving Chapter 13 Bankruptcy
Here are some tips to help you survive Chapter 13 bankruptcy:
- Stick to your repayment plan – Your repayment plan is a legal agreement between you and your creditors. Make sure you stick to it to avoid any legal complications.
- Create a budget – Develop a realistic budget that allows you to meet your monthly expenses and make your payment plan payments on time. Be sure to include all necessary expenses such as housing, utilities, food, transportation, and medical expenses.
- Communicate with your trustee – Your bankruptcy trustee oversees your case. Communicate regularly with your trustee and inform them of any changes to your financial situation or if you are having trouble making payments.
- Cut unnecessary expenses – Consider reducing your expenses, such as cutting back on dining out, entertainment, and luxury purchases. Every little bit helps in maintaining your payment plan.
- Avoid taking on new debt – It is critical for the success of your case that you avoid taking on new debt.
There are several parties involved in a bankruptcy case. Creditors (the people or entities you owe) can file a claim with the bankruptcy court for any money owed to them. The court appoints a bankruptcy trustee to oversee your case and ensure you make payments per the Chapter 13 repayment plan terms.
Managing deadlines, court dates and other requirements can become a complex, time-consuming process. People who prepare to survive Chapter 13 bankruptcy typically have an attorney to help them navigate the process, develop a payment plan, and work with the trustee.
Experienced Bankruptcy Attorney in Rancho Cucamonga, CA
Chapter 13 bankruptcy may be the best way to help you deal with mountains of debt, but that doesn’t mean it will be easy. Having an experienced bankruptcy attorney at your side can help ensure you not only survive Chapter 13 but that you can move forward and successfully rebuild your credit. Contact the Law Offices of Terrence Fantauzzi today at 909-552-1238 and learn more about your options for getting out of debt.