Chapter 13 Bankruptcy
Chapter 13 bankruptcy, often called a “wage earner's plan,” allows individuals with regular income to reorganize their debts and create a repayment plan over three to five years. It's an excellent option if you want to keep your home, catch up on mortgage payments, or have income that exceeds Chapter 7 limits.
How Chapter 13 Works
You'll propose a repayment plan to pay creditors over three to five years based on your income and expenses. The plan must pay priority debts (like taxes and child support) in full, but unsecured debts (like credit cards) may be paid partially or not at all. At the end of the plan, remaining eligible debts are discharged.
Key Benefits of Chapter 13
Save Your Home: Stop foreclosure and catch up on missed mortgage payments over time
Keep Your Property: Unlike Chapter 7, you don't risk losing non-exempt assets
Protect Co-Signers: The automatic stay protects co-signers on consumer debts
Reorganize Car Loans: In some cases, reduce the balance or interest rate on vehicle loans
Pay Tax Debt: Structure a manageable plan to pay priority tax obligations
Stop Collection Actions: Immediate relief from creditor harassment, garnishments, and lawsuits
Are you eligible?
To file Chapter 13, you must:
Have regular income sufficient to make plan payments
Have unsecured debts less than $465,275 and secured debts less than $1,395,875 (amounts adjusted periodically)
Be current on required tax filings
Complete credit counseling before filing
The Chapter 13 Process
After filing, you'll begin making plan payments within 30 days. You'll attend a meeting of creditors where the trustee reviews your case. A confirmation hearing follows where the court approves your plan. You'll make monthly payments to the trustee, who distributes funds to creditors. After completing all payments (typically 3-5 years), you receive a discharge of remaining eligible debts.
What Gets Paid in Chapter 13?
Priority debts like recent taxes, child support, and trustee fees must be paid in full. Secured debts like mortgages and car loans are typically paid to catch up arrears or fulfill the contract. Unsecured debts like credit cards and medical bills may receive little to nothing, depending on your disposable income.