In a chapter 13 case you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property, especially your home and car, which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.

You should consider filing a chapter 13 plan if you:

  1. Own your home and are in danger of losing it because of money problems
  2. Are behind on debt payments, but can catch up if given some time
  3. Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.
  4. Have filed and received a chapter 7 discharge in the last 8 years

You will need to have enough income in chapter 13 to pay for your necessities and to keep up with the required plan payments as they come due.

There are several situations where a chapter 13 is preferable to a chapter 7. A chapter 13 bankruptcy is normally for people who have too much income to file a chapter 7 bankruptcy or have the kind of debt that is non-dischargeable in a chapter 7 (e.g. certain taxes). Also, people file chapter 13 because they are behind on their mortgage, car loans, or business payments and are trying to avoid foreclosure or repossession. A chapter 13 bankruptcy allows them to make up their overdue payments over time and to reinstate the original agreement. Chapter 13 can also modify your car loan to allow you to pay the fair market value (as opposed to the loan value) of the car at the “Till rate” of interest (currently 4.75%) for up to 5 years.

However, for the vast majority of individuals who simply want to eliminate their heavy debt burden without paying any of it back, chapter 7 provides the most attractive choice.