Chapter 13 Bankruptcy: What is it and How Does it Work?

February 17, 2010

What is a Chapter 13 bankruptcy?

Chapter 13 bankruptcy is sometimes called “payment plan bankruptcy.”

In a Chapter 13, a person with regular income proposes a plan to repay some or all of his or her debts over a three to five year period.

The amount of debt the person must pay back depends on many factors, including the person’s income, total debt, and living expenses.

A Chapter 13 bankruptcy (1) lets consumers keep their assets and (2) gives them time to catch up on debt payments while under the protection of what is called the “automatic stay.”

The automatic stay prevents creditors or debt collectors from trying to collect while a person is under the protection of the bankruptcy court. The automatic stay prevents or stops most foreclosures, car repossessions, and debt lawsuits.

Will my debts be wiped out?

If you file Chapter 13 bankruptcy, you will have to pay back some of your debts. But, at the end of the payment plan, any remaining unsecured debt is wiped out.

Can I keep my assets in a Chapter 13 bankruptcy?

In a Chapter 13 bankruptcy, you usually don’t have to give up your assets, but you must pay some or all of your debts.

This is very different from a Chapter 7 bankruptcy, in which most of your debts are wiped out, but you might be required to give up assets that aren’t covered by your bankruptcy exemptions.

Do I need income to qualify for Chapter 13 bankruptcy?

People filing Chapter 13 bankruptcy must have regular income of a certain minimum amount. The required income amount depends on the amount of your debts, your living expenses, and several other factors.

If your income is irregular or too low, you might not be eligible to file a Chapter 13 bankruptcy. But, you might qualify for relief under Chapter 7.

Can I have too much debt to qualify for Chapter 13?

Yes. There are limits to how much secured debt you can have, and how much unsecured debt you can have. If your debts exceed these amounts, you will not qualify for Chapter 13.Â (But, you might qualify for bankruptcy relief under another chapter.)

A “secured debt” is a debt that is tied to property (such as your house or car) that the creditor can take back if you don’t pay the debt.

An “unsecured debt” is debt that is not tied to property that can be taken back by the creditor. Examples of unsecured debt include medical bills and most credit cards.

Continue reading “How is my Chapter 13 Bankruptcy Repayment Plan Calculated?”