What is a Chapter 13 Bankruptcy?

The major advantages to a Chapter 13 bankruptcy is that it allows the debtor the ability to permanently avoid a foreclosure by catching up the payments, strip away a second residential mortgage and handle some priority debts such as taxes, domestic support or student loans much better than a Chapter 7.   

The Chapter 13 plan is normally a 5 year plan paying back all of any disposable income and tax refunds but if the Debtor earns less than the average income it can be a 3 year plan.  A Chapter 13 may be the perfect method to deal with some situations such as catching up a foreclosure or repaying debts that can't be otherwise discharged. If you have filed a Bankruptcy previously please refer to the Chapter 7 and Chapter 13 time chart for re-filing and tell your attorney.  You can track your progress through the Chapter 13 National Data Center online.

Little or nothing may be paid back to unsecured debts in a Chapter 13 plan.   Plans often repay 10% or less to the unsecured debts.  Also if a Chapter 13 is filed it may be later converted to a Chapter 7 if the Chapter 13 cannot work.  By filing as a Chapter 13 and giving the Chapter 13 plan a reasonable and honest effort the means test can sometimes be avoided.    

If a debtor cannot qualify immediately for a Chapter 7 or if a debtor is facing future medical or other debts  they may choose to file a Chapter 13 initially and later convert to a Chapter 7 after a medical operation or later loss of income.  

Priority and non dischargeable debts such as income taxes, student loans or child support may need to be repaid in a Chapter 13 because a Chapter 7 would not discharge them.  By filing a Chapter 13 tax penalties and interest charges can be discharged and only the principle on the income taxes may be repaid in Chapter 13 cases.