What is Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy is called the “wage earner’s bankruptcy” because you must have some sort of income to qualify for it. A Chapter 13 bankruptcy differs from a Chapter 7 mainly in that it involves a monthly repayment plan for 3-5 years to pay back creditors a portion of some or all of their debts, whereas in a Chapter 7, a person’s assets would be liquidated instead to pay back the creditors.

A Chapter 13 is ideal for someone whose income is too high and who does not pass the means test, or for someone who has non-exempt property that would otherwise be liquidated in a Chapter 7. No personal or real property is sold in a Chapter 13. A Chapter 13 bankruptcy is also ideal for someone who is behind on their mortgage and who wants to save their home. You can even force certain secured creditors to accept less than what you owe them through a “cram-down” or “lien-strip” of their debts.

In a Chapter 13, your attorney works with you to determine a monthly plan payment that works with your budget while still meeting the requirements of your secured debt obligations. The best way to look at a Chapter 13 is that it allows you to catch up on missed payments in a period of 36 to 60 months, instead of having the missed payments be due up front.