Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a type of personal bankruptcy that allows filers to catch up on past-due payments while continuing to make payments on current debts.
In some cases, petitioners file under Chapter 13 to stop foreclosure or to financially recover after an injury or illness.
Understanding the basics of Chapter 13 bankruptcy is as easy as scrolling down a page, so check it out below and fill out the below form to connect with a sponsoring bankruptcy lawyer--for free--to find out if Chapter 13 may help you.
Can I File Chapter 13 Bankruptcy?
The U.S. government offers more than one type of personal bankruptcy because individual filers have different needs and experience different financial situations. Chapter 13 bankruptcy may be right for you if you:
- Are facing mortgage foreclosure or repossession
- Have a steady income source
- Can afford basic necessities and have enough money left over each month to make payments under a court-ordered repayment plan
- Have debt that falls within certain government-mandated limits. These limits change periodically and a Chapter 13 bankruptcy lawyer can fill you in on the latest figures
If you don't meet these criteria, you may still be able to file bankruptcy under Chapter 7 of the Bankruptcy Code.
Can Chapter 13 Bankruptcy Help Me?
If you're trying to decide whether Chapter 7 or Chapter 13 bankruptcy would be the best fit for your financial circumstances, it's important to remember that many factors come into play when making this decisions and a bankruptcy lawyer can help you make the final call.
Generally, though, Chapter 13 bankruptcy can be useful for people who:
- Want to prevent foreclosure or repossession. If you're behind on payments for a secured loan (that is, a loan backed by property like a home mortgage or auto loan), Chapter 13 bankruptcy's automatic stay will prevent collection action while your case is pending. For most filers, that's a period of three to five years.
- Have non-exempt property you want to keep. Certain property is protected from the court in Chapter 7 filings (“exempt” property), meaning that it cannot be sold to raise money to repay creditors. If you have property (such as jewelry, luxury items, etc.) that isn't protected by the court but you aren't willing to part with, Chapter 13 bankruptcy may allow you to keep it.
- Have non-dischargeable tax debts. Tax debts cannot usually be discharged in either kind of personal bankruptcy, but they can often be included in a Chapter 13 repayment plan, which may allow you to get back on track.
- Want to protect cosigners. If a family member or friend cosigned a loan to help you out, he or she will likely still be responsible for that loan if you file for Chapter 7 bankruptcy. Chapter 13 bankruptcy, though, gives you a chance to catch up on that loan and usually lets your cosigner off the hook.
- Have filed Chapter 7 bankruptcy recently. A Chapter 7 filing within the past eight years makes you ineligible for another, so Chapter 13 bankruptcy may be your only option.
- Have delinquent student loan debt. Student loans are only dischargeable in Chapter 7 bankruptcy in narrow circumstances. In Chapter 13, though, they can often be part of the repayment plan.
What Happens During a Chapter 13 Bankruptcy Case?
A typical Chapter 13 case lasts three to five years, during which time the filer makes late payments as well as current payments in order to catch up on debt and exit bankruptcy on schedule.
In general, you can expect the following from a Chapter 13 case:
- Completion of the pre-filing credit counseling briefing. You must complete this briefing for the court to accept your petition. A bankruptcy attorney can give you more details.
- Introduction of the automatic stay. Once your case has been filed, the court enters an automatic stay, which is designed to prevent all collection action against you, including repossession, foreclosure, wage garnishment, lawsuits, etc. The automatic stay lasts as long as your case is pending, which means you'll probably be protected from collectors for a three- to five-year period.
- Adherence to the repayment plan. During the course of your Chapter 13 case, you'll make regular monthly payments to your trustee, who will then distribute money among your creditors. If you miss a payment under the plan, you risk losing the protection of the court (including the automatic stay).
- Completion of the debtor education course. In order to be eligible for your bankruptcy discharge, you must complete a debtor education course, which is designed to help you learn about managing money, budgeting and making the most of your fresh financial start.
- Discharge. This is your exit from bankruptcy.
The Chapter 13 Repayment Plan and Discharge
The repayment plan is exactly what it sounds like – a schedule that allows petitioners to repay creditors to whom they owe money.
Chapter 13 bankruptcy doesn't "wipe the slate clean" like Chapter 7 may – instead, it allows filers to catch up on payments they've fallen behind on while staying abreast of normal payments.
If you make all your required payments throughout the life of your repayment plan, any remaining unsecured debts may be discharged by the bankruptcy court.
Once you've completed your repayment plan and financial management (debtor education) course, you can receive your bankruptcy discharge. This means your case is formally complete and you're "out of bankruptcy."
The Chapter 13 Bankruptcy Lawyer
From determining which chapter of bankruptcy is right for you to knowing when to file your schedules, complete the required classes and expect your discharge, Chapter 13 bankruptcy can be a complex and confusing process. But it doesn't have to be.
Working with a bankruptcy lawyer can allow you to focus on your finances rather than on trying to understand bankruptcy law.
And finding a sponsoring bankruptcy attorney practicing is easy--just fill out our free online case evaluation form or call 866-288-7281.
The above summary is not legal advice. Bankruptcy laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.