What Does A Chapter 13 Bankruptcy Do?

Chapter 13 bankruptcy, sometimes called wage earner bankruptcy, is a good option for people whose income is too high to qualify for liquidation of their debts through Chapter 7, or for people who have assets or property that would not be sufficiently protected in a Chapter 7. The most common reason to file a Chapter 13 bankruptcy include being delinquent on your mortgage or car loan, as you can get caught up on those payments while protecting your property against foreclosure or repossession. A Chapter 13 plan uses your income to repay certain types of debts over time and can limit the accumulation of interest.

On this page, we have provided answers to the most frequently asked questions we hear about Chapter 13 bankruptcy. This is general information; for advice on your specific case, please contact our firm to discuss your situation with an experienced bankruptcy attorney.

How does Chapter 13 bankruptcy work?

This type of bankruptcy creates a repayment plan for you to pay off your debts over a set period of time, usually five years. Rather than simply eliminating eligible debt, as Chapter 7 bankruptcy does, a Chapter 13 reorganizes the debt into a payment plan, which usually limits or reduces the amounts that must be repaid. Since Chapter 13 dedicates part of your income to repayment of debts, it is often called "wage earner's bankruptcy."

Is credit counseling required to file for Chapter 13?

Yes, prior to filing for Chapter 13 bankruptcy, you must attend credit counseling.

How do I stop creditors from calling to collect?

As soon as someone files for bankruptcy, creditors can no longer engage in collection activities — like those harassing phone calls or a garnishment of your wages. Any lawsuits by creditors are also put on hold and your property cannot be seized by creditors.

If my ex files for Chapter 13, will I lose child support?

No. Spousal support, child support and tax debt are not included in the debts covered by Chapter 13.

Can I use Chapter 13 to keep my house out of foreclosure?

People who fall behind on mortgage payments often choose Chapter 13 bankruptcy because it allows you to catch up on missed payments and keep your home.

Does Chapter 13 repayment include student loans?

Bankruptcy of any kind generally does not get rid of student loan debt obligations. But student loan payments are often more manageable when other debts are wrapped into a Chapter 13 repayment plan.

How does Chapter 13 manage credit card debt?

Credit card debt is a type of unsecured debt, meaning it is not backed by collateral like your mortgage or car payment. A Chapter 13 repayment plan requires you to repay all secured creditors and priority debts, such as child support, as well as at least a portion of any unsecured debt. Typically, a Chapter 13 plan requires a debtor to repay only a small percentage of credit card debt — as low as 10 percent.

Can I file for Chapter 13 to help pay off business debts?

No. Only individuals and married couples can file for Chapter 13 bankruptcy. Businesses do not qualify.

Can Chapter 13 eliminate tax debts?

A Chapter 13 bankruptcy can help deal with tax debt by setting up a payment plan. Depending on the age of the debt and type of tax owned, you may be able to get rid of the tax debt by paying only a percentage of what is owed.

Am I eligible if I have filed for bankruptcy before?

You can only file for Chapter 13 if you have not discharged debts through Chapter 7 bankruptcy within the past four years or through another Chapter 13 within the past two years. Once those time frames lapse, you can file again.

How much of my debt must be repaid?

Some debts must be paid in full under Chapter 13, while others only have to be partially paid. Priority debts, such as child support, must be fully paid. Mortgage and vehicle payments, called secured debts, are generally expected to be paid in full, although secured debts can sometimes be reduced based on the value of the collateral or by limiting the interest rate. Your repayment plan will include repayment of at least some of your unsecured debts, such as medical bills and credit card debt.

Is there a limit on how much debt someone filing for Chapter 13 can have?

Yes. If you have more than $336,900 in unsecured debt or more than $1,010,650 in secured debt, you will not be eligible to file for Chapter 13 bankruptcy.