Californians considering a Chapter 13 Debt Repayment Plan should be aware of the following key factors:
1. Length of the Plan (3-5 Years)
- The repayment period depends on income.
- 3-year plan: Available if the debtor’s income is below California’s median income.
- 5-year plan: Required if the debtor’s income is above the median.
- During this time, debtors make monthly payments to a court-appointed trustee, who then distributes payments to creditors.
2. Eligibility Requirements
- To qualify for Chapter 13 in California, a debtor must have regular income (wages, business income, social security) to support the repayment plan.
- Debt limits (as of 2025):
- Unsecured debts (credit cards, medical bills, personal loans, etc.) must be below $526,700.
- Secured debts (mortgages, car loans) must be below $1,580,125.
(These limits are periodically adjusted for inflation.)
3. Protection from Foreclosure & Repossession
- Chapter 13 halts foreclosure proceedings, allowing homeowners to catch up on missed mortgage payments over the Chapter 13 plan period assuming the homeowner can make both the regular monthly payment and the catch up payments each and every month.
- If behind on a car loan, it can help restructure payments to avoid repossession and possibly lower the interest rate.
4. Priority Debts & What Must Be Paid
Some debts must be fully repaid under the plan, including:
- Taxes (recent IRS/state tax debts)
- Child support & alimony
- Secured debts (such as mortgage arrears, car loan payments) if the debtor wants to keep the asset
- Most unsecured debts (such as credit cards, medical bills) may be reduced or discharged at the end of the plan.
5. How Much Will Monthly Payments Be?
- Payments are based on:
- The debtor’s income & expenses
- The total amount of debts
- The value of non-exempt assets
- California follows its own set of bankruptcy exemptions, which protect certain property from being sold in bankruptcy.
6. California-Specific Exemptions & Asset Protection
- Unlike Chapter 7 (which has certain asset limitations), Chapter 13 lets debtors keep their assets while making structured payments.
- California has two exemption systems:
- System 1 (704 exemptions): Protects more home equity (useful for homeowners).
- System 2 (703 exemptions): Provides stronger protection for cash, savings, and personal assets.
- Choosing the right exemption system can be crucial for protecting assets during Chapter 13.
7. Credit Impact & Rebuilding
- Chapter 13 bankruptcy stays on a credit report for 7 years (vs. 10 years for Chapter 7).
- Responsible repayment during the plan can gradually rebuild credit.
8. Dismissal or Conversion
- If a debtor fails to make Chapter 13 plan payments, the case can be dismissed, and creditors may resume collection efforts.
- Chapter 13 can also be converted to Chapter 7 if financial hardship worsens.
9. Legal & Court Fees
- Filing fees and legal fees vary based on case complexity (whether business involved, whether tax claims involved, etc.)
- Payment plans and various options are available. Call David A. Arietta at (925) 472-8000 to discuss your situation.