Chapter 13 Bankruptcy FAQ

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy reorganizes an individual's debt, while offering certain protections for their property. Unlike Chapter 7, which aims to eliminate most of your debt, Chapter 13 involves creating a plan to eventually repay your debt, over the course of three to five years. This of course requires proof that you will have enough income to pay the debt in the timeframe specified in your plan. If you do have a sufficient source of income, it is possible that you will not qualify for Chapter 7 - and even if you do, there are a few reasons that you might favor Chapter 13 (see also: Should I file for Chapter 7 instead? at the bottom of this page), one of the most common is wanting to prevent foreclosure on your home.

Will I have to go to court to file Chapter 13?

Normally, you will not go to "trial" in the sense of presenting your case before a judge or jury. Instead, you will go to a "341 Creditors Meeting", in which a court-appointed Trustee will ask you questions about your case and the forms/documentation that you have already filed. Your creditors may also attend this meeting, but often choose not to. This meeting is mandatory, and it is highly recommended that you bring your bankruptcy attorney, if you have one. In the event that a creditor challenges your case, you will have to stand before a bankruptcy court judge.

How much of my debt will I have to repay? And how soon?

Usually, you will be required to pay all secured debts, as well as "priority debts", in full. Some examples of "priority debts" may include:

Unsecured debts usually require payment of some fraction of the original debt, this percentage varies based on factors such as your income, value of your property, length of your repayment plan, etc.

The length of your repayment plan will be somewhere between 3 years and 5 years. The exact length will vary depending on the financial variables of your situation.

So then, would Chapter 13 protect my home from foreclosure, for certain?

As long as you make payments according to the reorganization plan, your home will almost certainly be protected. While it is possible for the court to allow a creditor to foreclose during Chapter 13, this is extremely unlikely if you've made all payments on time.

What happens if I lose my job, after filing Chapter 13?

There are no special provisions regarding job loss; meaning that you are responsible for finding another job or source of income, otherwise you will be unable to make payments according to the plan, and fall out of Chapter 13 protection as a result.

Should I file for Chapter 7 instead? What's the difference between Chapter 7 and Chapter 13?

In comparing Chapter 7 vs. Chapter 13, the most important difference is that Chapter 7 more or less erases debt, while Chapter 13 stretches repayment over time. If you know that you will not have enough income to pay off your debts in five years, or you are concerned that you will fail to complete Chapter 13 payments (i.e. you suspect that your job is insecure, or you have steadily increasing medical bills, etc.), you should probably lean toward Chapter 7. On the other hand, some possible reasons for leaning toward Chapter 13 might include: