CHAPTER 13: Why Should I Use it?

I am often asked, “ What is Chapter 13 and is it the kind of bankruptcy I should file?”

Most people with debt problems file Chapter 7. It is the fastest route to a “discharge”, the holy grail of bankruptcy. A Discharge Order frees you from personal liability for your debts.  Sometimes, however, Chapter 7 is not appropriate or is not available as a solution

If you make too much money based on your household size, you may not qualify for Chapter 7.  If you have many assets,  you may not want to file Chapter 7 as you may have to surrender some or all of them. There are some forms of debt that can be discharged in a Chapter 7. If you are behind in mortgage or car payments, Chapter 7 will not do much to help you.

This is why Chapter 13 might be the form of bankruptcy you should use. It enables you to force the restructuring of your outstanding mortgage or car payments over an extended period. You can restructure balloon payments. And you can hold on to assets that you might have to give up in a Chapter 7. If you do not pass the “means test”, an evaluation of your bankruptcy eligibility, you might be able to solve your problems with a Chapter 13.

The disadvantages of Chapter 13 are its duration and its costs. You can typically get through a Chapter 7 process in 5-6 months. You do not make payments to a bankruptcy trustee. But in a Chapter 13 you have to commit to a program of 3-5 years, and you have to make monthly payments to the bankruptcy trustee. Those funds are held by the trustee and disbursed to your creditors on a periodic basis. The amount of your payments are based on a complicated set of parameters.  These take into account your income, expenses, and the value of your assets. A competent Chapter 13 bankruptcy lawyer can give you guidance on how those parameters work.  In most cases, the total of the payments is less than the amount of debt you owe, sometimes significantly less.

Find a Board Certified Chapter 13 lawyer who can answer your questions.