What Is A Chapter 13 Bankruptcy?

A Chapter 13 Bankruptcy is generally used by a debtor who is behind on payment of a secured debt such as a mortgage or a car note.  The debtor using a Chapter 7 bankruptcy creates a payment plan to catch up on the past due debt.

A Chapter 13 bankruptcy is also sometimes referred to as a “Wage Earner” bankruptcy since the debtor has to propose a plan of how he will use his income to pay the past due amount (also called an arrearage).   Without a source of income a Chapter 13 bankruptcy plan cannot succeed.

The debtor in a Chapter 13 bankruptcy must show he has enough money to keep the secured debt current and at the same time provide for payment of the arrearages on the secured debt.

Depending upon the amount of income the debtor has, he may also be required to pay some or all of the debt that he also owes to his unsecured creditors.

A Chapter 13 bankruptcy will usually take 36 to 60 months to complete.  If the Chapter 13 bankruptcy is successfully completed, the debtor receives a discharge of his debts.

Before Congress change the bankruptcy code with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) it was rare that a debtor would file for a Chapter 13 bankruptcy unless he was at risk of losing a house to foreclosure or a car to repossession to file for a bankruptcy.  With the enactment of BAPCPA a small percentage of people with income above the median income for their are now required to file a Chapter 13 bankruptcy.

As with a Chapter 7 bankruptcy, certain debts, such as taxes and court ordered child support obligations cannot be discharged in bankruptcy.

The decision to file for bankruptcy and the type of bankruptcy to file are important decisions.   You will want to hire an experienced bankruptcy attorney to assist you in making this decision.