Chapter 13 Bankruptcy is a three to five-year payment plan that typically requires you to pay a portion of your debt while enabling you to discharge the rest.
Most Chapter 13 bankruptcies are filed by people who earn too much money to qualify for Chapter 7, but people with lower income may also file Chapter 13. The amount you must pay in Chapter 13 bankruptcy depends on your income, assets and debt. Certain types of debts must be paid back in full in a Chapter 13 bankruptcy, including certain taxes, arrears on secured loans (ex., mortgage, auto loan), and arrears on domestic support obligations. These debts can be repaid over time as part of your three to five-year payment plan. While Chapter 13 provides the benefit of enabling you to protect your assets from liquidation, you must pay creditors in Chapter 13 at least to the extent of the value of your unprotected (“non-exempt”) assets. And you may have to pay creditors more than this if you can afford to based on your “disposable income”, which the law determines through a mathematical formula.
Chapter 13 bankruptcy can provide benefits that are not available in Chapter 7. In certain circumstances, Chapter 13 bankruptcy can enable people to permanently remove a second mortgage from their home, lower the interest rate on a vehicle loan, reduce the balance owed on a vehicle loan, and reduce the amount of a tax lien. Chapter 13 bankruptcy can enable you to protect your non-exempt property from liquidation. And Chapter 13 can stop foreclosure or repossession while enabling you to make up missed payments (arrears) on the secured debt over three to five years.