How Chapter 13 is different than Chapter 7 Bankruptcy
Chapter 13 bankruptcy is far more complex than chapter 7 bankruptcy. In chapter 7 bankruptcy non-exempt assets are sold with the proceeds given to creditors in a certain order. In chapter 13 bankruptcy debts are reorganized and repaid in whole or in part over 3 to 5 years according to a confirmed repayment plan.
Length of Representation
One of the striking differences between chapter 7 and 13 bankruptcy is the length of the bankruptcy process. Chapter 7 bankruptcy is a relatively quick process lasting only a few months. In contrast, chapter 13 bankruptcy lasts 3 to 5 years.
Keeping Non-exempt Property
With chapter 13 bankruptcy lasting so long why would anyone want to file chapter 13 instead of chapter 7? In chapter 13 bankruptcy property that is not exempt under State law (ie. subject to sale in chapter 7) can be retained as long as that non-exempt dollar value is paid to general unsecured creditors through the chapter 13 plan. (To learn more about this requirement read our article on the best interests of creditors test for confirming a chapter 13 plan). Therefore, people who want to retain their home with significant equity may choose to repay their debts in chapter 13 bankruptcy rather than lose their house in chapter 7.
Chapter 13 bankruptcy also differs from chapter 7 bankruptcy in terms of income before bankruptcy. While in chapter 7 bankruptcy you want to have low income for the 6 month period before filing to pass the means test and qualify for chapter 7 bankruptcy, in chapter 13 bankruptcy you want enough income after expenses to show that you can make your proposed chapter 13 plan payments. In short, your chapter 13 plan must be feasible to be confirmed by the Bankruptcy Court. If you can’t show enough income after expenses on paper to afford your chapter 13 plan payments you probably won’t be able to make those payments in real life.
Chapter 13 bankruptcy is far more complicated than chapter 7 bankruptcy. Perhaps fortunately for people looking to file chapter 13 bankruptcy attorney fees in Sacramento are fairly standard. Thanks to no look fee guidelines bankruptcy attorneys can only charge a maximum of $4,000 for non-business chapter 13 bankruptcies unless they want the Bankruptcy Court to second guess the reasonableness of their fee. The resulting standardization of fees allows clients to search for the best qualified chapter 13 bankruptcy attorney instead of the cheapest.