Chapter 13 bankruptcy is the primary reorganization chapter of bankruptcy for individuals. It is mainly used by debtors when they have one of the following scenarios:
- They want to file bankruptcy, but cannot file a Chapter 7 due to the fact they filed and received a Chapter 7 discharge in the past eight years.
- They want to file bankruptcy, but cannot file a Chapter 7 bankruptcy due to the result of their means test.
- They want to file bankruptcy, but are at risk of losing some assets to their trustee in a Chapter 7, so they wish to file a Chapter 13 and retain all of their property.
- They want to keep their house and/or car and are in substantial arrears, so they want to use the bankruptcy court protections to immediately stop a foreclosure and repossession and come up with a repayment plan to retain those items in the long term.
- Your value of your first mortgage exceeds what your house is worth and you also have a second mortgage behind it which you wish to eliminate. The second mortgage can be eliminated through a process called lien stripping.
Chapter 13 has some decided advantages over Chapter 7. For starters, there is no scenario where a trustee can liquidate your property in a Chapter 13. Additionally, a debtor can always voluntarily dismiss a Chapter 13. This is unlike a Chapter 7, where the debtor must have the trustee permission to dismiss.
In exchange for those advantages, the Chapter 13 debtor has a lot to deal with that a Chapter 7 debtor does not. For starters, the Chapter 13 debtor has to enter into a minimum 36 month repayment plan, unlike the Chapter 7 debtor, who has no repayment plan. The Chapter 13 debtor also must seek the court permission to borrow money, sell or refinance items, or even keep their tax refund. The Chapter 7 debtor has no such restraints.
In our free initial consultation, we will discuss the pros and cons of Chapter 13 bankruptcy, and you can decide if it is the right chapter for you.