Chapter 13 Bankruptcy

Chapter 13 refers to a U.S. bankruptcy proceeding in which debtors undertake a reorganization of their finances under the supervision and approval of the courts. Individuals and married couples, even if self-employed or operating an unincorporated business, are eligible to file for Chapter 13 bankruptcy.

As part of a Chapter 13 reorganization, which is also known as a wage earner's plan, debtors must submit and follow through with a plan to repay outstanding creditors within three to five years.

In most circumstances the repayment plan must provide a substantial payback to creditors—at least equal to what they would receive under other forms of bankruptcy—and it must, if needed, use 100% of the debtor's disposable income for repayment.                                                          

MYTH-BUSTING CHAPTER 13

A common misconception about Chapter 13 is that you pay back everything that is owed to your creditors.  This is NOT true. In the vast majority of Chapter 13 cases, unsecured creditors (credit cards, medical bills) are NOT paid back everything you owe. In fact, in most cases they are paid pennies on the dollar, with no interest.  What that means for you is that Chapter 13 can often be a better option than debt consolidation, debt settlement, or paying the debts off yourself.  

Chapter 13 plans can be from 36 to 60 months depending on a number of factors like affordability and your income leading up to the bankruptcy case.   

The best part of Chapter 13? You get to keep your stuff. In Chapter 7, if you have assets worth more than a certain dollar amount, they can be sold by the Chapter 7 Trustee.  This just doesn't happen in Chapter 13.  Your possessions are safe.

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