How do chapter 13 work

Your other option is to move ahead with Chapter 7 in the hopes you can prove that you aren't able to pay your debts. If you choose this route, you'll proceed under the "presumption of abuse," meaning you might be abusing bankruptcy laws by pursuing a full discharge when you have the means to pay back your debts.

In a Chapter 13 case, instead of turning over your property for a trustee to sell, you make payments for 36 to 60 months to a Chapter 13 trustee who distributes the funds to creditors who have filed claims that the court agrees are proper. Why would someone file a Chapter 13 case that can last as long as five years when a Chapter 7 case usually lasts about six months? There are a number of factors that go into that decision. Chapter 13 may provide you with bankruptcy protection even if you make too much money to qualify for a Chapter 7 case or if you received a discharge in a prior Chapter 7 case.

You get the length of the plan to pay back past due amounts owed on houses, cars, and other loans that have collateral. Chapter 13 may allow you to set new terms for the payment of a car loan that is older than 2.

Chapter 13 allows you to pay past-due income taxes and domestic support obligations like child support and alimony over the three- to five-year payment plan. This form of bankruptcy protects any co-signers you have, and it could help you reduce high student loan payments. Furthermore, Chapter 13 allows you to protect property that you'd have to give up in a Chapter 7 case.

And, there's a chance you can roll your bankruptcy attorney's fees into your repayment plan. Chapter 13 can be a lifesaver for individuals who are committed to making it a success. Chapter 13 cases, though, are not easy to live with. In fact, the American Bankruptcy Institute noted in a study that only But, knowing what to expect is one of the most important factors in setting yourself up for success.

The hallmark of a Chapter 13 case is its payment plan. The payments last from 36 to 60 months and may include an amount that will go to unsecured creditors, past-due taxes, and past-due home mortgage amounts. It may even include car or house payments and some portion of your attorney fees.

The payment plan is designed to:. The types and amount of debt you owe determine what your payments will be, as well as your income and your reasonable and necessary expenses. Some flexibility can be built into payment plans and budgets to account for the unexpected, but it is difficult even for experienced bankruptcy attorneys and Chapter 13 trustees to account for everything that might happen. You may not know for months after your case is filed if your proposed plan payments are acceptable to the Bankruptcy Court and the Chapter 13 Trustee.

The trustee will verify your income and make sure your expenses are not too high. It takes several months for creditors to file claims and for all the players to review those claims.

If you disagree with a claim, the bankruptcy judge may have to decide the dispute. This process can take several months to a year to complete. Filing bankruptcy no longer carries the stigma that it once did.

Many people have filed bankruptcy over the last 40 years. Despite the sheer numbers, people usually do not want to broadcast that they filed a bankruptcy case. Everyone respects that concern, but it is a fact that bankruptcy cases are public records. On the other hand, unless you have a reason to look at them, most people will never learn about your case.

There are exceptions, however. Many Chapter 13 trustees require that you make your payments through a payroll deduction. The trustee will send a form to your employer setting up that deduction.

Creditors will have an opportunity to object to the plan beforehand. After confirmation in a Chapter 13 case, the debtor must complete the three- to five-year repayment plan before any debts get wiped out.

By contrast, discharge of debt is immediate after a Chapter 11 confirmation. The confirmation creates new contracts between the debtor and creditors. Both Chapter 11 and Chapter 13 cases can be difficult to complete successfully. Debtors in Chapter 11 cases must be represented by an attorney. Although it's possible to represent yourself in a Chapter 13 case, doing so is rarely successful, and most courts encourage filers to retain counsel.

Here are some examples of debts you'll repay in Chapter 13 bankruptcy. Although the repayment length will depend on how much you earn, most filers will have a five-year plan. The only exception is that a three-year plan is available to people who qualify to file a Chapter 7 case but choose to file a Chapter 13 bankruptcy instead—perhaps to save a house or car, or to pay off a priority debt, such as child support arrearages or taxes.

Even so, because the monthly payment will often be significantly lower over five years, it's common for filers to opt for the more extended plan—primarily because it increases the likelihood that the court will confirm the plan. For more on repayment plans, see The Chapter 13 Repayment Plan. A lot of financial changes can occur over the course of your plan. But that doesn't mean you're out of the plan automatically. If, for example, your income decreases, you might be able to modify the amount being paid to your unsecured creditors.

If, however, you can't pay a required debt, the court might let you discharge your debts due to hardship. Examples of hardship would be a sudden plant closing in a one-factory town or a debilitating illness. If neither options are feasible, you might be able to convert switch to a Chapter 7 bankruptcy. Keep in mind, however, that there's a good chance that you'd lose your nonexempt property.

The other option is to dismiss your Chapter 13 bankruptcy case. The downside to this approach is that you would still owe your outstanding debt balance, plus any interest creditors didn't charge during your Chapter 13 case.

Learn more about your options if you can't complete your Chapter 13 plan. After completing your repayment plan, you must show the court that you are current on your child support and alimony obligations and that you have completed the budget counseling course mentioned above.

If you meet all requirements, the remaining balance on qualifying dischargeable debt gets wiped out. You should be debt free except for a mortgage or student loan if you have one. The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site.

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Meet the Editors. An Overview of Chapter 13 Bankruptcy. In exchange for debt relief, chapter 13 filers pay their discretionary income to their creditors over the course of a three- to five-year repayment plan.

Chapter 13 Eligibility Chapter 13 bankruptcy isn't for everyone. Here are a few requirements you should know upfront. Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

The repayment plan is like a personalized road map for paying off some or all of your debts in a Chapter 13 bankruptcy , and it works somewhat like a short-term consolidation loan. The plan helps you to restructure your debts for one bimonthly or monthly payment based on a number of factors, including the total sum of your eligible debts, your household income and various potential deductions for items like cost-of-living expenses and required tax payments.

The plan is then submitted to the bankruptcy court for approval, at which time the judge and your creditors will have the chance to challenge it. If your plan is approved and you make three to five years of regular payments according to the plan, some or all of your remaining debts may be discharged , and your debt picture could be much brighter. Read on for more info on how a Chapter 13 repayment plan works, how to work through the forms and how to maximize your chances of following the plan during the repayment period.

Bankruptcy can help you get out from under considerable debt, but not all forms of bankruptcy allow you to keep many of your most important assets along the way. Those with regular income can file a Chapter 13 bankruptcy to help keep key assets like a home or car. In Chapter 13 , debts are restructured over a three- or five-year period.

If you make regular payments over that time, then some or all of your debts may be discharged. It must be drawn up and filed with the bankruptcy court within 14 days of filing the bankruptcy petition unless you get an extension , after which the judge and your creditors will have a chance to assess and possibly challenge the plan.

Not all of your debts are treated equally under Chapter 13 bankruptcy — some might not even have to be paid in full. Generally, your debts will be split into three different categories in your Chapter 13 repayment plan. Priority debts are those that must be paid off during the course of your plan, with certain exceptions. These are debts like back taxes you owe, the cost of filing for bankruptcy, and child- and spousal-support payments that need to be brought current.

Secured debts are those that are backed by collateral — a home mortgage or auto loan, for example. Depending on the specifics of the secured loan, you can be required to pay back the value of the collateral or the full payment of the debt.