Chapter 7 | Chapter 13 | Chapter 11

Chapter 13 Bankruptcy 

A Chapter 13 Bankruptcy may be more appropriate when:

• The debtor is not eligible for Chapter 7 bankruptcy under the new bankruptcy law
• The debtor wants to use bankruptcy to reorganize by catching up on home mortgage payments, car loans, child support, student loans, or taxes.

In a Chapter 13, a debtor must repay a portion of the delinquent debts over time in exchange for a discharge of any remaining unpaid debt.  A determination of how much a debtor must pay over the course of a Chapter 13 Plan depends, in part, on the nature and value of the debtor’s property and assets.

Under Chapter 13, if the debtor’s assets are fully exempt, the debtor will only have to pay disposable income into the Plan.  However, if the debtor’s assets are only partially exempt, the debtor will have to make enough payments over the course of the Chapter 13 Plan to equal the fair market value of the non-exempt assets the debtor intends to keep.  The Bankruptcy Code requires this because unsecured creditors in a Chapter 13 must get at least the same amount as they would in a Chapter 7 liquidation.

In a Chapter 13, the debtor may keep all of the debtor’s property whether it is exempt or non-exempt if the debtor is able to pay the equivalent value of non-exempt property into the plan. The debtor may, however, give up some secured property to a secured creditor as part of the reorganization plan.

How Chapter 13 Affects Homeowners  -  A Chapter 13 is often preferable for homeowners who are in arrears on their house payments and are facing a foreclosure.  Under Chapter 13, the debtor has 36-60 months to cure an arrearage so long as the current mortgage payments are being made.  Also, the debtor may have an opportunity to market and sell the residence rather than lose the homestead equity in the house to a foreclosure.