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Chapter 13

Chapter 13

A Chapter 13 bankruptcy provides qualified candidates the ability reorganize debt. It enables individuals with regular income to propose a plan to repay all or part of their debts. Debtors propose a repayment plan to make installments to creditors over three to five years. During the plan period the creditors are forbidden from starting or continuing collection efforts.  
Bankruptcy candidates routinely ask why they should file a chapter 13 bankruptcy when a chapter 7 cancels a majority of debt and is completed in approximately three months.   
Chapter 13 offers many advantages over a chapter 7 bankruptcy. Chapter 13 offers individuals the opportunity to:
  • Save their homes from foreclosure
  • Recover or save vehicles from a repossession
  • Cancel and strip junior mortgage liens (HELOCS, 2nds)
  • Cure delinquent payments over the term of the chapter 13 plan (3-5 years)
  • Reduce the sum owed on car loans to the current fair market value of the vehicle.
  • Keep unexempt assets assets which would be subject to trustee sale if a debtor files chapter 7  

Chapter 13 Eligibility

To qualify chapter 13 candidates typically have disposable cash available after paying their regular, routine household expenses, such as:
  • Rent, or Mortgage 
  • Car Loan(s)
  • Utilities
  • Groceries
  • Daycare
  • Gasoline and Car Maintenance
  • Auto, Health and Rental Insurance
  • And other household necessities

The Chapter 13 Repayment Plan

The most important part of your chapter 13 paperwork will be a repayment plan. Your repayment plan will describe in detail how (and how much) you will pay each of your debts. 

How Much Is Your Chapter 13 Payment

Your Chapter 13 plan must pay certain debts in full. These debts are called "priority debts," because they're considered sufficiently important to jump to the head of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax obligations.

In addition, your plan must include your regular payments on secured debts, such as a car loan or mortgage, as well as repayment of any arrearages on the debts (the amount by which you've fallen behind in your payments).

The plan must show that any disposable income you have left after making these required payments will go towards repaying your unsecured debts, such as credit card or medical bills. You don't have to repay these debts in full (or at all, in some cases). You just have to show that you are putting any remaining income towards their repayment.

How Long Your Repayment Plan Will Last

The length of your repayment plan depends on how much you earn and how much you owe. If your average monthly income over the six months prior to the date you filed for bankruptcy is more than the median income for your state, you'll have to propose a five-year plan. If your income is lower than the median, you may propose a three-year plan. (To get the median income figures for your state, go to the United States Trustee's website,, and click "Means Testing Information.") In some instances, below-median debtors will need to extend their plans beyond three years to repay a sufficient amount of debts. Likewise, if an above-median debtor can repay all debts in full in less then five years, then a shorter plan is possible.

If You Can't Make Plan Payments

If for some reason you cannot finish a Chapter 13 repayment plan -- for example, you lose your job or your income is reduced and can't keep up with the Chapter 13 plan payments -- upon request, the court may modify your plan, or the court might allow you a hardship discharge despite not completing the confirmed plan term.

If the bankruptcy court won't let you modify your plan or give you a hardship discharge, you might be able to convert to your Chapter 13 to a Chapter 7 bankruptcy.  Depending on your particular circumstance, you can request the court dismiss your Chapter 13 bankruptcy case (you would still owe your debts, plus any interest creditors did not charge while your Chapter 13 case was pending). 

How a Chapter 13 Case Ends

Once you complete your repayment plan, all remaining debts that are eligible for discharge will be wiped out. Before you can receive a discharge, you must satisfy the court's requirement that, if applicable, you are current on your child support and/or alimony obligations and that you have completed a budget counseling course with an agency approved by the United States Trustee. 

Contact us Today

We are here to serve your needs and minimize the stress of never ending debt obligations. Contact us in order that we may begin to counsel and guide you throughout the legal process.  For a consultation call us at (619) 849 – 8849.

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