Chapter 13 Bankruptcy

See also: Chapter 13 Section of our Washington State Bankruptcy FAQ

Reorganizing Individual Debt, While Avoiding Foreclosure

Chapter 13 bankruptcy allows an individual to reorganize their debt, stretching repayment over a three to five year plan. In contrast to Chapter 7 bankruptcy, Chapter 13 does not entail liquidation of your non-exempt property. In fact, if you're able to follow through with payments as designated by the reorganization plan (and keep up your mortgage, car loans payments, etc.), there's a good chance you won't have to surrender any property. Thus, filing for Chapter 13 is often an attractive option for wage-earners seeking to protect their home against foreclosure, buying time to eventually repay debts that they can't afford to pay now.

Under a Chapter 13 reorganization plan, you'll typically be required to repay some debts in full, while other debts can can be reduced to some percentage of the original amount (see FAQ topic How much of my debt will I have to repay? for some examples). In addition to meeting various qualifications, you must be able to show that you will have sufficient income to complete payments over the 3 to 5 year period.

Benefits of Chapter 13

Can save your house from foreclosure

May make debts manageable by spreading repayment over time

Provisions may allow you to "catch up" on mortgage and car loan payments

May extend protection to partners and friends that have co-signed for loans and other consumer debt

Full or partial discharge of all debt after completion of the court approved payment plan

Effectively similar to a 3-5 year debt consolidation plan

Prevents contact/harrassment from creditors - all payments are made through a court trustee

In some cases, Chapter 13 can be filed after a Chapter 7 filing (to handle debt not discharged through Chapter 7)

Typically easier to qualify than Chapter 7 (higher income limits, etc.)

Drawbacks of Chapter 13

Relatively low debt limits for qualification - unsecured debt must be less than $336,900, secured debt less than $1,010,650

You still have to pay back some/all of your debt over time, as opposed to Chapter 7 which typically eliminates most/all of your unsecured debt

If you become unable to make payments according to your reorganization plan, you will likely lose the protections of Chapter 13.

Remains on your credit history for 10 years