What Is A Chapter 13 Bankruptcy

If you have been tipped into financial ruin, Chapter 13 bankruptcy might be the best thing to make a fresh start. It might be possible to save your house and other properties with Chapter 13 bankruptcy. But what exactly is a Chapter 13 bankruptcy? In this post, we will talk about some of the basics of this kind of bankruptcy.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is a legal process allowing individuals with a regular income to pay off their debts over a period of three to five years. It is a way for individuals to get a fresh start and rebuild their finances while still being able to pay off their debts.

Chapter 13 bankruptcy is often referred to as a “reorganization” because it involves restructuring debts and the creation of a repayment plan. To qualify for Chapter 13 bankruptcy, an individual must have a regular income, and their debts must fall within certain limits.

How Does a Chapter 13 Bankruptcy Compare to a Chapter 7 Bankruptcy?

Chapter 13 bankruptcy and Chapter 7 bankruptcy are types of bankruptcy available to individuals and businesses in the United States. Both types of bankruptcy are designed to help people struggling with debt who cannot pay their bills. However, there are some differences between these two types of bankruptcy that it is essential to understand.

The Differences

One of the main differences between Chapter 13 bankruptcy and Chapter 7 bankruptcy is how debts are handled. In Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, an individual’s assets are sold to pay off their debts. This means that the individual may have to give up some of their assets, such as their home or car, in order to pay off their debts. 

In contrast, Chapter 13 bankruptcy, also known as “reorganization” bankruptcy, involves restructuring debts and the creation of a repayment plan. This allows the individual to keep their assets and pay off their debts over some time, typically three to five years.

In addition, Chapter 13 bankruptcies can also allow individuals to keep their homes while they make payments on their debts. This is accomplished by filing a repayment plan that allocates funds to mortgage payments instead of allocating them solely toward unsecured debts. 

Furthermore, Chapter 13 bankruptcies can also help individuals reduce the amount of debt they owe or extend their repayment period, which can lower the amount of interest that is accruing on the debt.

Another critical difference between these two types of bankruptcy is the eligibility requirements. To qualify for Chapter 7 bankruptcy, an individual must pass a means test designed to determine whether they have sufficient income to pay off their debts. In contrast, Chapter 13 bankruptcy is generally available to individuals with a regular income, regardless of their income level.

The Similarities

Despite these differences, there are also some similarities between Chapter 13 bankruptcy and Chapter 7 bankruptcy. Both types of bankruptcy provide some temporary relief from creditor harassment and can give individuals a chance to get a fresh start and rebuild their finances.

Another thing they are similar to is the bankruptcy forms that the individuals are filing. However, some forms, including the means test form, are slightly different. 

Another similarity is the forms that are required to be completed. You must file the same forms for both Chapter 13 and Chapter 7 bankruptcy, including the petition, assets and liabilities schedules, financial affairs statements, and income and expenses. Although they have different test forms to fill out, they are both very similar in terms of forms.

Benefits of Chapter 13 Bankruptcy

While bankruptcy may sound like a bad solution, it can effectively manage debt and get back on track financially. Chapter 13 bankruptcy offers several advantages compared with Chapter 7 bankruptcy:

Allows Individuals to Keep Their Assets

One of the main benefits of Chapter 13 bankruptcy is that it allows individuals to keep certain assets, such as their home or car. This means they don’t have to worry about losing these items while trying to pay off their debts.

Restructuring of the Debt

A Chapter 13 bankruptcy is a restructuring of the debt. It’s also a repayment plan because you’ll pay your creditors over three to five years. You will pay only what you can afford under this plan, which may result in your debts being reduced or eliminated.

A Chapter 13 bankruptcy can be used to pay off unsecured debts (such as credit cards) and secured debts (such as car loans). Priority debts (such as child support arrearages and taxes) are also paid through the plan, but not all priority debts must be repaid if they have been discharged through a previous chapter 7 or 11 bankruptcy case.

Protection from Creditors

Another benefit of Chapter 13 bankruptcy is that it stops creditors from harassing and collecting on debts. This is one of the main reasons people turn to bankruptcy for relief. As long as the debtor complies with his or her payment plan, creditors are prohibited from contacting them or taking any action against them. This can give individuals peace of mind while trying to get back on their feet financially.

Improved Credit Score

Finally, Chapter 13 bankruptcy can help individuals improve their credit scores. This allows them to pay off their debts and make all payments on time. Over time, this will result in a better credit score, allowing individuals to access better loans and other types of credit. 

Additionally, since the bankruptcy will remain on an individual’s credit report for seven years, timely payments under a Chapter 13 plan can help to offset some of the negative effects.

Chapter 13 Eligibility

Not everyone is eligible for Chapter 13 bankruptcy. Generally, you must have sufficient income to pay off some of your debts. You also need to be current on certain types of debt, such as child support payments and taxes, to qualify for a Chapter 13 plan. 

Suppose you are self-employed or operating an unincorporated business. In that case, you are eligible for chapter 13 relief as long as you have combined total secured and unsecured debts of less than $2,750,000 as of filing for bankruptcy relief.

If you have prior bankruptcy filings, you must meet additional requirements. Additionally, some types of debts may not be discharged through a Chapter 13 bankruptcy filing. These includes:

  • Student loans
  • Alimony and child support payments
  • Taxes, fines, penalties, and other government debts
  • Money or property you stole or embezzled

The Legal Rules Surrounding Bankruptcy

Bankruptcy is governed by the federal Bankruptcy Code, which is comprised of laws enacted by Congress and regulations issued by the courts. It’s important to understand these legal rules before you file for bankruptcy.

You must make regular monthly payments.

For example, if you file a Chapter 13 bankruptcy, you must make regular monthly payments to the trustee. The trustee is the person who oversees your case and will use the money you pay them every month to pay your creditors, including secured and unsecured creditors. 

Some examples of secured creditors are mortgage lenders on a home or car loan; these types of debts usually must be paid in full through Chapter 13. 

Unsecured creditors include credit card companies, utility companies, and medical providers; they cannot be forced to accept less than what they are owed in most cases. Once all payments are made, your case can be closed and discharged (canceled).

The plan must be approved by the court and is binding on all creditors, whether they want it or not.

You also have to file a plan with your bankruptcy court. The plan is an official document that describes how you intend to pay back your creditors. It must be approved by the court and is binding on all creditors whether they like it.

If your plan does not meet the Bankruptcy Code or any other law requirements, the court will dismiss it and require you to start over again with a new one. If this happens, don’t panic! 

You can start over again with a new Chapter 13 case if necessary; there’s no limit as to how many times you can file under chapter 13 as long as you qualify under the Bankruptcy Code, which deals specifically with Chapter 13.

Several Factors that Will Affect the Length of Your Chapter 13 Bankruptcy

The length of your Chapter 13 bankruptcy depends on several factors. This include:

  • The amount of debt you have:  Your repayment plan must be long enough to allow you to pay off all of your debts in full. Your repayment plan will naturally take longer if you have a large debt.
  • Your income: The amount of money you make each month impacts how much you can afford to pay each month and thus affects the length of your repayment plan.
  • The type of debts you owe:  Some debts must be paid back in full within the repayment plan, such as secured debts like a mortgage or car loan. Other debts, like credit card debt and medical bills, may be able to be discharged before the end of the repayment plan.
  • Your state laws: Some states have laws governing Chapter 13 bankruptcies that can affect the length of your plan.

Tips to Make the Most of Your Chapter 13 Bankruptcy

When filing for bankruptcy, it’s important to ensure you take all the necessary steps to maximize the benefits of your Chapter 13 case. Here are a few tips that can help:

  • Create a budget and stick to it: Creating and following a budget is essential in ensuring you don’t overextend yourself financially. This will help you ensure you always have enough money to pay your bills and necessary expenses to succeed in your Chapter 13 case.
  • Be organized: Keeping your documents organized throughout the process is key to a smooth bankruptcy filing. You should keep all your paperwork in one place, so it’s easy to access when needed.
  • Stay informed: You should stay up-to-date on the latest bankruptcy rules and regulations and state laws that might apply to you during your case. This will help ensure you know what is expected of you throughout the process and can help prevent any surprises.
  • Work with Bankruptcy Attorney: Working with a bankruptcy attorney can also be beneficial during your Chapter 13 case. An experienced attorney can help you understand the legal requirements of filing for bankruptcy and advise you on the best strategy for your particular situation. They can also negotiate with creditors to ensure you get the most favorable terms possible.

Regardless of what you ultimately decide to do, the most important thing is to ensure that you understand your options and take action as soon as possible. Filing for bankruptcy can be complicated, but with the right guidance and preparation, it doesn’t have to be overwhelming. 

With these tips in mind, you can ensure that your Chapter 13 case is successful and helps you get back on track to financial freedom.


Chapter 13 bankruptcy is a great option for those looking to get out of debt and regain control of their finances. By understanding the process, creating and sticking to a budget, staying organized, staying informed, and working with an experienced attorney, you can make sure your Chapter 13 case goes as smoothly as possible. 

No matter your situation, you can use Chapter 13 to help you get back on track and regain control of your financial future.

Let Us Help You Have A Fresh Start

At Bankruptcy Law Network, we understand how hard it can be to deal with overwhelming debt. Our experienced attorneys are here to help you through the bankruptcy process so that you can get a fresh start and regain control of your finances. 

We will work closely with you to create an effective strategy for filing for Chapter 13 bankruptcy that fits your needs and budget. Contact us today, and we’ll be glad to answer any questions about filing for Chapter 13 bankruptcy.