Why Chapter 13?
Chapter 13 bankruptcy is a repayment plan that protects the debtor
from collection action during the plan and discharges any unpaid balance
of dischargeable debts at the end of the plan.
in Chapter 13 covers some debts that cannot be discharged in Chapter
7. It is a powerful tool for debtors to regain control of
their financial lives and to get a meaningful fresh start.
Debtors choose to file a repayment plan under Chapter 13 when
- they owe debts not dischargeable in Chapter 7 (such as taxes, child
support, marital property settlements)
- they have liens
that are larger than the value of the assets securing the debt
- they are behind on car or house payments
- their assets are worth more than the available exemptions
- they are repaying retirement fund loans not permitted in Chapter 7
dischargeable in Chapter 7.
The Chapter 13 plan does not have to pay debts in full; it can provide
for only fractional payment. How much the plan has to pay to creditors
is a function of the confirmation
The Bankruptcy Code does require that priority
claims be paid in full. The most frequently found priority
claims are recent taxes and family support. More
on creative use of Chapter 13 for tax troubles.
The Chapter 13 discharge
eliminates some debts that cannot be discharged in Chapter 7, like
recent tax penalties and non support debts incurred in the course of
It permits the debtor time to pay debts that can't be discharged in
either chapter, like recent taxes or back child support; to cure defaults
on home mortgages; and to eliminate liens to the extent the lien is
greater than the value of the asset.
More on reducing or eliminating liens
eligible for Chapter 13?
To file Chapter 13, you must be
- an individual (no corporations or partnerships);
- have a regular income greater than your reasonable living expenses;
- have liquidated, unsecured debts not exceeding $336,900 and secured
debts not exceeding $1,010,650.
Telling if a debt is secured.
A liquidated debt is one where the amount the debtor owes is
known, or capable of easy calculation. For example, a loan
is a liquidated debt; the damages owing in an auto accident are
usually unliquidated until judgment is entered.
Effect of prior bankruptcies
While you can only file Chapter 7 every 8 years, you can file a Chapter
13 bankruptcy even if you got a Chapter 7 discharge less than 8 years
A strategy frequently used is to file Chapter 7 to discharge those
debts that are dischargeable, and file a subsequent Chapter 13 to repay
those debts that were not discharged in Chapter 7. This sequence
is sometimes called a "Chapter 20", a 7 plus 13.
In fact there is no Chapter 20 of the Bankruptcy Code. This approach
is limited by the provisions of the 2005 amendments which allow a discharge
in a subsequent 13 only when specified time has passed.