Chapter 13 Bankruptcy

Chapter 13 bankruptcy summary: 

• Chapter 13 bankruptcy allows more freedom to keep valuable assets like your home.

• Chapter 13 bankruptcy cases are more complex and have lower success rates over time, but could be a good debt solution if you’re prepared. 

• A Chapter 13 bankruptcy typically causes significant credit damage and stays on your credit report for seven years after the date you filed for bankruptcy. 

Chapter 13 Bankruptcy Definition and Meaning

Chapter 13 bankruptcies are a type of bankruptcy commonly called a “wage earner’s plan.” If you earn a regular income and can make payments under a court-approved plan, some or all of your debts can be wiped away after three or five years of making on-time payments. People who earn too much to qualify for a Chapter 7 liquidation bankruptcy or who want to keep certain assets, like their house, can choose this type of bankruptcy.

Key Components of Chapter 13 Bankruptcy

Filing for Chapter 13 bankruptcy is serious business, but could offer the relief you need if you’re struggling with your debts. Here are some key facts to know about it:

• Timeline: It’ll take three or five years to complete your Chapter 13 bankruptcy case, depending on your income.

• Eligibility: You must be earning a regular income. Your unsecured debts can’t be over $465,875, and your secured debts can’t be over $1,395,875.

• Payment amount: You’ll propose a payment amount when you file for bankruptcy with the courts. It’ll usually be all of your remaining income after you subtract the amount you need for basic living expenses and other necessities.

• Types of debts: You can include most unsecured debts like credit cards and personal loans. Chapter 13 also allows you to catch up on overdue payments on secured debts like your mortgage and car loan, although these aren’t eligible for discharge at the end of the payment plan. 

• Hiring an attorney: You can file for Chapter 13 bankruptcy yourself, but it’s a good idea to hire an attorney to make sure everything’s done correctly. If you go it alone, the court will expect you to understand all the procedures and forms. Most self-represented Chapter 13 cases are unsuccessful.  

• Credit impact: Bankruptcy usually causes significant credit damage. As with all things related to your credit, the impact fades over time. Chapter 13 falls off your credit history after seven years. 

Chapter 13 Comprehensive Breakdown

Here’s how a typical Chapter 13 bankruptcy case works.

Complete pre-bankruptcy credit counseling

You’ll need to file a certificate with the court saying you’ve taken an approved bankruptcy counseling session covering how bankruptcy works and whether it’s right for you. 

File for Chapter 13 bankruptcy

Your attorney will submit your bankruptcy petition and other required forms to your local bankruptcy court. This starts the official bankruptcy process, and you must start making the proposed payments on your plan.

Creditor meeting

The bankruptcy court will notify your creditors and give them a court date. You must attend, but your creditors might not. At this meeting, the creditors have the opportunity to give their feedback on your repayment plan.

Confirmation hearing

A bankruptcy judge will officially accept or reject your bankruptcy petition based on the results from your creditor meeting and the information you’ve provided.

Payment plan

You’ll continue making payments under the terms of your contract, as approved by the judge. You can also have the payments withheld from your payroll checks to make it easier to pay on time. 

Post-bankruptcy credit counseling

You’ll need to file another certificate with the court saying you’ve taken an approved course in financial management skills. 

Debt discharge

If you’ve successfully followed all of the filing and payment requirements over the years, a bankruptcy judge will discharge your remaining eligible debts according to your plan’s terms.