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 to support the repayment plan.
- Debt limits (as of 2024):
- Unsecured debts (credit cards, medical bills, personal loans, etc.) must be below $465,275.
- Secured debts (mortgages, car loans) must be below $1,395,875.
(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 time.
- If behind on a car loan, it can help restructure payments to avoid repossession.
4. Priority Debts & What Must Be Paid
Some debts must be fully repaid under the plan, including:
- Taxes (some IRS/state tax debts)
- Child support & alimony
- Secured debts (e.g., mortgage arrears, car loan payments) if the debtor wants to keep the asset
- Some unsecured debts 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 may require selling assets), 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 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 (~$313) and legal fees vary based on case complexity.
- Many bankruptcy attorneys in California offer payment plans.