Chapter 13

Chapter 13 bankruptcy, known as a “wage earner’s plan,” is a legal process that enables regular-income individuals to repay their debts over a specified period, typically three to five years, by reorganizing their finances. This form of bankruptcy is designed for debtors who have sufficient disposable income to make partial payments to creditors but need the protection and structure of a court-approved repayment plan. The court plays a crucial role in this process, overseeing the repayment plan and ensuring its feasibility.
When filing for Chapter 13, the debtor takes the reins and proposes a repayment plan. This plan outlines how they will repay their creditors over the determined period. The plan must be feasible and provide for the full payment of priority debts, such as taxes and back support, while unsecured debts, like credit card balances, may receive only a percentage of the total owed.
One of Chapter 13’s primary benefits is the peace of mind it offers. It allows debtors to keep their property, including homes and vehicles, as long as they can continue making payments according to the repayment plan. This contrasts with Chapter 7, which may require the liquidation of non-exempt assets.
Throughout the repayment period, the debtor makes regular payments to a trustee appointed by the court, who then distributes the funds to creditors as outlined in the plan. If the debtor completes the plan, any remaining dischargeable unsecured debts, which typically include credit card debts and medical bills, are eliminated. This means the debtor will not be legally obligated to repay these debts.
Chapter 13 is an effective tool for debtors falling behind on mortgage or car loan payments. It provides an opportunity to catch up on arrears over time while protecting against foreclosure or repossession.