Chapter 13 Bankruptcy

Chapter 13, or repayment bankruptcy, affords you the opportunity to keep more of your property value (such as your house) provided that you pay back your creditors an agreed upon amount over a three to five year period. You are put on a court approved plan to do this. This type of bankruptcy may be better for debtors who have larger assets that may not be protected in a chapter 7, such as real property with higher equity. Often why people choose to file a chapter 13 is if their housing payments are in arrears. The chapter 13 plan is a good method for getting caught up with your mortgage payments and preventing foreclosure on your home.

In a chapter 13 the bankruptcy attorney will meet with the debtor and obtain from them the various information necessary to proceed with the case, like they would in a chapter 7. The attorney will begin constructing the bankruptcy petition. Once the petition is completed and the debtor has attended the credit counseling class, the bankruptcy attorney will file with the court. Also like in a chapter 7 the debtor must complete a debtor education course.

Repayment Plan

This is probably the most important document in your bankruptcy. It lists and categorizes your debts and indicates how much you will be paying on each of those debts. The repayment plan needs to be confirmed by the court, but even before this is done you must begin making payments under your proposed Chapter 13 repayment plan within 30 days after you file. This provides the court with the indication that you have good faith as well as the ability to make payments. Once the plan is confirmed at a confirmation hearing, you will make regular monthly payments for as long as your plan lasts, which will be either 3 or 5 years. In order for a Chapter 13 to work, it usually means the debtor must have a regular income every month to pay into the plan

How Much Will Be Paid

To start with, your plan will include regular payments on secured debts for property you wish to keep, such as mortgages and car loans. This will also include any payments in which you've fallen behind. Your plan must also pay certain debts in full. These debts are known as "priority debts".  Debts of this nature will include certain tax debts, child and spousal support, and penalties and fines owed to governmental institutions. The Chapter 13 plan must show that any disposable income you have left over after making the above required payments will go towards paying your unsecured debts, such as your credit cards. You often don't have to repay this debt in full.

Discharge

Once the payment plan has been completed, you will receive a discharge, which wipes out your remaining eligible debt.