Chapter 13 Bankruptcy

California Bankruptcy Attorneys
J.L. Borrie & Associates

Representing individuals and businesses in bankruptcy filings throughout Southern California, including the Inland Empire area, Riverside, San Bernardino, Redlands, Lake Arrowhead, Running Springs, Big Bear, High Desert and Victorville.

Chapter 13 Bankruptcy cases, are commonly referred to as a wage earner plan, and is what some unscrupulous persons advertise by saying, avoid bankruptcy, file a wage earners plan or a debt consolidation, implying that it is a non bankruptcy procedure. Of course they aren’t being truthful.

Generally speaking, a Chapter 13 is a reorganization of your financial affairs, as to monthly payments, and many times, as to the principal balance of your debts, without borrowing any money. It allows you to stop foreclosures, repossessions, wage garnishments, tax levies, IRS seizures, etc, by allowing you to set up a court enforced repayment plan to restructure secured debts including arrearages on your home, generally over three years (sometimes as much as five years), and of unsecured debts, including taxes, over a period of 5 years, thereby reducing monthly payments to an affordable amount, and allowing you to keep your property.

In most cases, it immediately stops interest charges on unsecured debts, and can be structured to protect most co signers from any creditor action.

Chapter 13s are commonly used to stop foreclosures on homes and probably the simplest way to explain how it works is by way of an example. Assume your are $6,000 behind on your house payments, the mortgage company has commenced a foreclosure, you owe the IRS $3,000 and they are garnishing your wages, you owe miscellaneous charge cards debts and personal loans totaling $25,000 with payments of $650 monthly on credit cards alone. Further, when you prepare a budget, you only have $500 excess monthly income after paying your regular current house payment, food, and utilities, but without any payment to the IRS, charge cards or personal loans, or on the house payment arrearages. If you were to file a Chapter 13, you could make payments of $485 monthly, which would be used to catch up the past due payments on your home, pay the IRS in full, and pay all the charge cards and personal loans. Immediately upon filing the Chapter 13, the foreclosure and IRS garnishment would be stopped and none of your creditors would be allowed to take any action to collect the amounts owed. In some cases, the principal balances of your credit card and personal loan debts can be substantially reduced. Now I know that some advertisements you may see will say you can pay $100 monthly on a $60,000 debt, but in the real world, it rarely happens, and when it does, it generally means that you filed the wrong chapter and shouldn't be paying any of it back.

Under most circumstances, if your budget does not allow full repayment of all unsecured debt, you can pay back less than 100% to these creditors. The tactical considerations can be quite complicated and problematical, but the basic consideration is as follows: If you pay at least 70% of the debt, and the court makes a finding that that amount constitutes your best efforts, there is no bar to your filing a Chapter 7 case within the next 6 years if you run into more financial difficulty in the future. If you pay less than 70% (and we have confirmed 1% plans in the past, though they are becoming increasingly difficult at that low percentage) you will be barred from filing a Chapter 7 case within the next six years.

Chapter 13 vs. Chapter 11

Chapter 11 cases are similar to Chapter 13’s, but are much more flexible. A Chapter 11 proceeding, is a much-expanded version of a Chapter 13 designed primarily for large businesses, partnerships and corporations, though individuals can file a Chapter 11. Chapter 11's are commonly used to obtain an expanded time period within which to pay back all or part of the outstanding obligations, including the ability to stretch tax repayments to the IRS, EDD, etc up to six years, even if they object, and if they consent, an even longer period. The procedures are complex, and involve the selling of a plan to creditors who ultimately will vote on whether to accept the plan. Generally, if more than half the creditors in numbers, and two thirds in dollar amounts vote for the plan, the remaining creditors in that class are bound whether they like it or not. Tax creditors generally do not get to vote and are stuck with the plan provided they are to be repaid within 6 years.

Contrast this voting requirement with Chapter 13's, where in most cases, creditors not only don't get to vote, provided the plan meets certain technical requirements, they cannot even object to terms they feel are objectionable. Composition plans, where less than the full amount is paid back, are common in Chapter 11 and Chapter 13 cases.

There are restrictions on who can file a chapter 13, and the basic requirement is that only individuals (including those in business) can file Chapter 13. Corporations and partnerships cannot file Chapter 13. Additionally, congress set debt limits for individuals to qualify for Chapter 13's, and were initially set at $250,000 unsecured and $750,000 secured, with small automatic periodic increases to these amounts.  As of the last revision to this page, the amounts have increased to $336,900. unsecured and $1,010,650. secured.

The problem with Chapter 11 cases for all but substantial operating businesses, is that they are very lawyer intensive and therefore expensive compared to Chapter 13 cases.

The fee for Chapter 13 cases is influenced heavily by the courts determination of what they feel is a reasonable fee in their jurisdiction for the average case. In Riverside and San Bernardino Counties, the court has set $4,000. in non business cases, and $4,500. in small business cases as the amount allowable unless a special application is filed to charge a higher amount. Filing such an application is usually not cost effective due to the extra attorney time involved, so most experienced bankruptcy attorneys, including this firm, limit our fees in most cases to that amount. For most chapter 13 cases we are willing to accept one half of the attorneys fees, plus the court filing fee to prepare and file the case, with the other half of attorneys fees to be paid through the monthly plan payments along with your other creditors.

Chapter 11 cases are so varied in difficulty and complexity, that no range or meaningful amount can be stated. It depends very heavily on the specific problems, size and scope of business operations, and legal complexity, but most specialists in this area believe the absolute minimum is between $15,000 to $20,000. Fees in some large business cases have been in the millions.

We offer a free conference of up to one hour with an experienced (a minimum of 10 years) bankruptcy, tax problem, foreclosure and debt resolution attorney (not a junior associate or paralegal) who will fully analyze your specific financial situation, and advise you as to your available options, likelihood of success, and the costs and procedures involved in each alternative.

If you would like someone to contact you regarding your problems or concerns, please choose the appropriate choice below, or call us at 951-686-6432 and mention that you visited our web site for a free, no-obligation conference.