What Is Chapter 13 Bankruptcy?

​Chapter 13 Bankruptcy is a repayment plan that allows a person to repay some or all of his or her debts through a payment plan approved by the Bankruptcy Court.  The repayment plan amount to the Bankruptcy Court is typically determined by examining a person's household income and expenses and then determining the amount of available money left over after the payment of all household expenses.  Thus, for most persons, the amount of money they repay to their creditors each month is based upon their ability to pay and based upon the amount they can afford to repay after the payment of ongoing living expenses.  A Chapter 13 Trustee is appointed by the Bankruptcy Court who accounts for the payments each month and sends them to the creditors.  

How Long Does Chapter 13 Bankruptcy Last?

A Chapter 13 Bankruptcy typically lasts 3-5 years.  After the last payment is made, the filer is no longer liable for the remainder of his or her dischargeable debt and the balances are erased.  Some debts cannot be erased in a Chapter 13 bankruptcy such as income taxes, student loans,  and child support or alimony, for example.  The Chapter 13 Bankruptcy case can, however, often be structured to pay such debts in full, for example, thereby eliminating any remaining balance that would otherwise exist at the end of the case.  Additionally, some Chapter 13 Bankruptcy repayment plans can even end early and prior to the 3-5 year time frame.  Our attorneys can determine how long your bankruptcy case should last and recommend the proper time frame for you. 

Who Is A Good Candidate For Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy is a good choice for a person who cannot afford to repay unsecured debts such as credit cards, medical bills, personal loans, utilities, payday loans, monies still owing from repossessed vehicles, overpayment of unemployment or other benefits, etc..  Secured debts such as mortgages, car loans, property taxes and income taxes can also be restructured in the repayment plan to make the payments more manageable for the filer and to catch up past due amounts or even pay off the debts in full.  The person must have sufficient income and the ability to repay his or her creditors in a reasonable amount of time. 
 
Some persons who are otherwise eligible to file Chapter 7 Bankruptcy may be in jeopardy of losing an asset due to its value were they to file Chapter 7 Bankruptcy, for example, but in Chapter 13 Bankruptcy the filer does not stand a chance of losing any of his or her assets.
 
Other reasons a person might be a good candidate for Chapter 13 Bankruptcy are if the filer has debts that would not be dischargeable under Chapter 7 bankruptcy or if the filer needs to protect a co-signer from creditors or collection agencies.  There are some other reasons as well why a person might want to consider filing Chapter 13 Bankruptcy that are not listed here.  Our attorneys can give you a better idea as to how exactly Chapter 13 Bankruptcy could assist you and determine whether Chapter 7 Bankruptcy or Chapter 13 Bankruptcy is the best fit for you and explain the differences. 

A Person Should Consider Chapter 13 if:

• He or she is behind on their home mortgage
• He or she is behind on their car payments
• He or she had an income interruption and now needs a chance to catch up
• He or she would like to try to pay back some money to their creditors
• He or she needs to file for bankruptcy but do not qualify for a Chapter 7 case
• He or she has assets that they do not want to risk losing
• He or she has tax debts of any kind that needs help resolving and fixing permanently
• He or she has overwhelming monthly student loan payments
• He or she has large Income tax debt

What Is Considered Income For Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy is sometimes referred to as the “Wage Earner’s Plan.”  However, Chapter 13 is not limited to what is traditionally thought of as wages.  A person may qualify for Chapter 13 if he or she has any source of income on a regular basis.

How Is The Monthly Repayment Plan Calculated?

Calculating the monthly payment plan can be complex and includes may different factors. However, a simplified of explanation of calculating a restructuring plan for a chapter 13 bankruptcy is first, the attorney will total the filer’s monthly income from all sources.  Next, the attorney will subtract the filer’s monthly living expenses such as food, clothing, utilities, insurance, etc.  The amount that is left over will be divided up among the creditors. ​

What Happens After My Monthly Repayment Plan Has Been Calculated?

The attorney files the case and prepares a “Chapter 13 Plan” which is simply a debt repayment proposal.  This proposal gets sent to all of the filer’s creditors and the Chapter 13 Trustee.  The trustee and the creditors will examine the proposal and can chose to file any objections to the proposal based on several factors including but not limited to, feasibility, treatment of claims, lack of the filer’s best effort to repay, and others.  After the objections are resolved, the revised proposal can be approved by the Bankruptcy Court Judge in an “Order Confirming Plan.”  This plan then becomes the official Chapter 13 Plan and dictates the rights, responsibilities, and expectations all parties have during the bankruptcy.  The Chapter 13 Plan and the monthly repayment amount is not necessarily set in stone and it can be altered in many case if, for example, the filer experiences a decrease in income and/or increase in expenses or some other temporary or permanent hardship.  The Chapter 13 Bankrutpcy repayment plan can also be voluntarily ended at any time if the filer does not wish to continue it. 

Why Is Chapter 13 Bankruptcy A Good Idea?

The goal of Chapter 13 Bankruptcy is to let people propose a plan to reduce debt, fix a poor financial situation, and get his or her finances back on track.  Chapter 13 bankruptcy allows a person to create a payment plan in which debt is repaid slowly, over time, and frequently, at pennies on the dollar with the remaining balances being erased.  Since every person's financial situation is unique, it is important to schedule a free consultation which can be conducted in person or over the telephone.  The attorney can then assess your financial situation, determine what kind of bankruptcy you will qualify for and what kind will be the proper fit for you, answer all of your questions and discuss any applicable fees and costs.