A Chapter 13 bankruptcy can be a viable option if a debtor is overwhelmed by debt, yet has too high of an income to file a Chapter 7 application. A Chapter 13 bankruptcy is commonly thought of as a debt reorganization, because the debtor is agreeing to repay some or all of their debt over a period of three to five years. The repayment plan is overseen by the bankruptcy court for the duration of the Chapter 13 plan.  

Within this type of bankruptcy filing, the debtor is allowed to keep all of their property and personal assets, regardless of their value. This is much different than a Chapter 7, in which the debtor is can only keep certain allowable exemptions. Although all the property can be retained, one qualification that a successful Chapter 13 plan must meet is that the plan must provide payment to unsecured creditors in the amount they would benefit if the debtor had filed a Chapter 7 bankruptcy and been forced to give up the property not fitting into any exempt category. Otherwise stated, the payments over the life of the plan must equal at least the value of the debtor’s non-exempt property.

Through a Chapter 13 plan, the debtor can also keep property that they would otherwise lose because the payments are in arrears. This means that if a house is in the foreclosure process or if vehicles are about to be repossessed, the debtor can feasibly retain the property if the Chapter 13 repayment plan includes repayment on the past due amounts and the debtor keeps current on all future payments. 

The repayment plan involved in a Chapter 13 bankruptcy requires payment of some debts in full, such as child support or alimony, past due taxes or debts owed from accidents occurring while the debtor was intoxicated; while other debts are paid pennies on the dollar. In order for the plan to be approved, the debtor must make enough income to remain current on all the debt secured by property the plan proposes retaining, while still paying some amount towards their unsecured debt, such as credit card bills and medical bills.

Photo 1: At.morey.tota, Creative Commons

Photo 2: Mystica, Creative Commons