What Is Chapter 13 Bankruptcy, and Is It Right for Me?
Chapter 13 bankruptcy is a powerful debt restructuring tool for people who need bankruptcy protection but want to keep their property, catch up on overdue payments, or reorganize debts over time. Unlike Chapter 7 bankruptcy, which is designed to eliminate qualifying unsecured debts more quickly, Chapter 13 involves a repayment plan for your finances that usually lasts three to five years.
For many people, Chapter 13 is the right option when they have too much income to qualify for Chapter 7, need to catch up on mortgage payments while keeping the property, or have significant non-dischargeable debts.
If you are struggling with debt and wondering whether Chapter 13 is the right solution, a Chapter 13 bankruptcy attorney can review your income, assets, debts, and goals to help you decide.
More Details about Chapter 13 Bankruptcy
Chapter 13 bankruptcy is sometimes called a “wage earner’s plan” or a “reorganization” bankruptcy. Instead of wiping out debt immediately, Chapter 13 allows you to propose a court-approved plan to repay some or all of your debts over time, through one monthly payment.
In general:
- People with income below the state median may qualify for a 3-year repayment plan
- People with income above the state median may qualify for a 5-year repayment plan
The exact length of your bankruptcy plan depends on your debts, types of debt, income, expenses, and assets.
Why Would You File for Chapter 13 Bankruptcy?
Chapter 13 can solve problems that Chapter 7 often can’t. It is especially useful when a person needs time and court protection to catch up on secured debts or deal with debt obligations that would not be discharged after a Chapter 7 filing.
Common reasons to file under Chapter 13 include:
1. You make too much money to qualify for Chapter 7
If your income is too high and you fail the means test, you must file Chapter 13 rather than Chapter 7. Bankruptcy laws prevent those with enough disposable income from filing Chapter 7, but Chapter 13 still allows you to receive bankruptcy protection and work towards a discharge.
2. You want to keep property that might be at risk in Chapter 7.
Some people choose Chapter 13 because it offers a better chance of keeping valuable assets. If property might not be fully protected in Chapter 7, Chapter 13 can sometimes allow you to keep it while repaying creditors over time through the plan.
3. You need to catch up on mortgage arrears or car payments.
Chapter 13 can be a powerful tool for people who are behind on house payments or car loans (secured debts). It may allow you to stop foreclosure or repossession and catch up on missed payments over time rather than all at once.
4. You need breathing room from student loan payments.
Although student loans are not discharged in bankruptcy, Chapter 13 may allow you to reduce pressure from those payments while you address other debts.
5. You have debts that are dischargeable under Chapter 13 but not Chapter 7.
Marital debts (although not marital support obligations) are dischargeable in Chapter 13 and not Chapter 7 bankruptcy.
6. Your driver’s license is suspended for traffic infractions.
Chapter 13 allows you to reinstate your license immediately in many instances. A Chapter 13 bankruptcy attorney can review your unique circumstances and help you determine if a Chapter 13 filing is best for you.
Frequently Asked Questions
How long does a Chapter 13 bankruptcy last?
Most Chapter 13 repayment plans last between three and five years. The exact length depends in part on your income and the structure of your repayment plan.
Can Chapter 13 stop foreclosure or car repossession?
In many cases, yes. Filing Chapter 13 triggers an automatic stay, which can stop foreclosure proceedings, repossession efforts, wage garnishments, and many other collection actions while your bankruptcy case is pending.
Take Your First Step Towards Financial Freedom
When you speak to an experienced Chapter 13 bankruptcy attorney, you can rest assured that the decision on whether to file Chapter 7 or Chapter 13 won’t be made on your own. Instead, an attorney can help you assess your situation, look at your obligations, and provide you with an objective opinion about your options.
Contact a Chapter 13 bankruptcy attorney to get the answers you need. Schedule your free phone consultation by calling us at 503-278-5400 or filling out an online case evaluation form.
