What is Chapter 13?

Filing for Chapter 13 bankruptcy is a bit like enrolling in a debt settlement program, except that a Chapter 13 repayment plan is court-ordered. That means the results are guaranteed as long as you complete the program successfully.

The court evaluates your situation and sets up a repayment plan with monthly payments that work for your budget. Once you complete the repayment plan as scheduled, the remaining balances on qualified debts are discharged. Chapter 13 is also known as the “wage earner plan” because of this arranged repayment schedule.

How Chapter 13 works

  1. First you must complete pre-bankruptcy credit counseling within 180 days prior to the date of your bankruptcy filing.
  2. Once you file with the courts, an “automatic stay” is issued. This prevents creditors from taking actions against you, meaning it stops collections and foreclosure actions.
  3. A bankruptcy clerk sends notices of the filing to all creditors and lenders listed in your filing documents.
  4. A “means test” is conducted in accordance with guidelines set by the BAPCPA. This determines if you’re eligible to file for Chapter 13.
  5. Once you’re cleared to file, a judge arranges the court-ordered repayment plan. In most cases you do not have to pay back all of your debt; you also may only be required to pay back a portion of each debt.
  6. In general, a Chapter 13 repayment plan lasts about 3-5 years. The monthly payments are made to a trustee, who distributes the payments amongst your creditor on your behalf. Creditors are not allowed to contact you for additional money.
  7. After all assigned payments are made, the remaining balances are discharged and your accounts are closed.

Deciding if Chapter 13 is the right choice for you

Comparing Chapter 13 vs. Chapter 7

A Chapter 7 filing liquidates the filer’s available assets. Chapter 13 sets a monthly repayment schedule using your available income. So while Chapter 7 bankruptcy typically moves faster, Chapter 13 protects your assets from liquidation.

If you have significant personal assets that you don’t want to lose during your filing, Chapter 13 may be the better option.

Requirements for a Chapter 13 filing

You must meet the following qualifications in order to file Chapter 13:

  • Your total unsecured debt must be less than $360,475
  • Total secured debt must not total more than $1,081,400
  • You must be a resident of the state where you file for at least 2 years
  • You must complete pre-bankruptcy credit counseling within 180 days before your filing date