What is a Chapter 13 Bankruptcy?

What is Chapter 13 Bankruptcy?

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A Chapter 13 bankruptcy case is a debt repayment plan. It is also referred to as a wage-earner bankruptcy because you must have a steady income to qualify to file under Chapter 13.

A typical Chapter 13 bankruptcy plan is 60 months in length. However, some debtors qualify to file a 36-month plan.

Monthly payments are paid to a Chapter 13 trustee. The trustee uses the payments to pay creditors according to the debtor’s confirmed Chapter 13 plan.

Debtors who cannot qualify for Chapter 7 because of income requirements may file under Chapter 13. A Chapter 13 bankruptcy offers some advantages that filing under Chapter 7 does not offer.

Advantages of Filing a Chapter 13 Bankruptcy

Filing a Chapter 13 bankruptcy case can allow you to keep your home. Filing the bankruptcy petition stops a foreclosure action. You can catch up past due mortgage payments in a Chapter 13 repayment plan.

You might be able to lower your car loan payments in a Chapter 13 bankruptcy plan. Some debtors can lower the interest rate on their car loan through the repayment plan. By filing a Chapter 13 bankruptcy case, you can stop repossession of your vehicle.

Alimony and child support are not eligible for a discharge in bankruptcy. However, you can repay the past due support payments through a Chapter 13 bankruptcy plan.

Most income taxes are not eligible for a discharge. You can also pay your past due income taxes through a Chapter 13 bankruptcy plan.

In most Chapter 13 bankruptcy plans, debtors only pay a percentage of the amount owed on unsecured debts. Unsecured debts include medical bills, credit card debt, personal loans, and old utility bills.

When a debtor completes a Chapter 13 bankruptcy plan, the remaining debt owed on unsecured debts eligible for a discharge is wiped out. Creditors cannot try to collect a discharged debt.

If you have property that is not protected by bankruptcy exemptions, filing a Chapter 13 bankruptcy case can protect the property. In a Chapter 7 case, a debtor could lose this property.

What Will I Pay Each Month to the Chapter 13 Bankruptcy Trustee?

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Your Chapter 13 bankruptcy plan payment is calculated based on several factors. The Means Test calculates your monthly disposable income. Your disposable income is included in your bankruptcy plan payment each month.

Other factors used to calculate your plan payment include whether or not you are repaying past mortgage payments and car loan payments.

Priority unsecured debts, such as income tax debt, alimony, and child support, must be paid in full through the Chapter 13 repayment plan. In addition, you must pay the administrative fees for the Chapter 13 trustee.

Also, if you have non-exempt equity in property, your plan payment will increase if you want to keep the property. You must pay an amount equal to the non-exempt equity to your unsecured creditors through your Chapter 13 bankruptcy plan.

The length of the bankruptcy plan also impacts the amount of the monthly payment. Most Chapter 13 bankruptcy plans are calculated for 60 months.

Is Filing a Chapter 13 Bankruptcy Case More Difficult Than Filing a Chapter 7 Case?

Yes, filing a Chapter 13 bankruptcy case is usually more complex. The bankruptcy forms for a Chapter 13 case are basically the same as a Chapter 7 case.

However, in a Chapter 13 bankruptcy case, you must file a Chapter 13 repayment plan. A Chapter 13 repayment plan can be difficult to calculate. You must have an extensive understanding of bankruptcy laws related to Chapter 13 bankruptcy cases.

Filing a Chapter 7 case can be much less complicated than filing a Chapter 13 bankruptcy. In many cases, you can file a Chapter 7 bankruptcy case without an attorney.

If you want to explore filing a Chapter 7 bankruptcy case, Upsolve can help. We are a nonprofit whose mission is to assist low-income individuals who need help to recover from a financial crisis. Our services are provided at no cost to you. If you need a fresh start, click here to start Upsolve's free bankruptcy process.

Am I A Good Candidate for a Chapter 7 Bankruptcy Case?

A Chapter 13 bankruptcy case may be a good option for some people. However, if you meet the income qualifications for a Chapter 7 case, filing under Chapter 7 has several benefits.

Many Chapter 7 bankruptcy cases are completed in four to six months after filing the bankruptcy petition. Chapter 13 bankruptcy cases usually take over five years to complete.

With the help of Upsolve, you can file your Chapter 7 bankruptcy case even though you cannot afford to pay an attorney. A Chapter 13 case is complex. Debtors who attempt to file a Chapter 13 case without an attorney can run into serious problems.

In a typical Chapter 7 case, the debtor is not required to pay any money to unsecured creditors whose debts are eligible for a bankruptcy discharge. Most unsecured debts are dischargeable except student loans, alimony, child support, and most income taxes. In a Chapter 13 bankruptcy case, the debtor must pay back a certain percentage of their unsecured debts.

Most Chapter 7 cases are no-asset cases. Federal and state bankruptcy exemptions usually protect all equity in a debtor’s assets. In a no-asset Chapter 7 case, the debtor keeps all of his or her property while getting rid of thousands of dollars in unsecured debts.

When you receive your bankruptcy discharge, creditors cannot try to collect a discharged debt. This means no more harassing telephone calls or threatening letters from unsecured creditors.

Chapter 13 Bankruptcy vs. Chapter 7 Bankruptcy

Deciding whether to file a Chapter 13 bankruptcy case or a Chapter 7 bankruptcy can be difficult without help. However, you do not need to make this decision alone. Upsolve is here to help you analyze your financial situation to determine if a Chapter 7 bankruptcy case is an option you should consider.

Upsolve, a Harvard Law School-grown nonprofit that provides Chapter 7 bankruptcy services at no cost to low-income families, has developed a system that takes you step-by-step through the process of filing Chapter 7. An attorney reviews your forms before you file them with the court. You can do this!

It is easy to begin. Just supply your email address and click to see if you qualify.

Do You Need a Helping Hand?

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Everyone needs a helping hand at certain times in their lives. Many people go through life events that cause financial hardships. Divorce, unemployment, the death of a family member, sudden illness, reduction in income, or accidental injury can cause you to fall behind in paying your bills.

Regardless of why you are struggling with debt, you have the right to seek bankruptcy relief. The bankruptcy court does not judge debtors for the reason they need help. The bankruptcy court is designed to help individuals who need debt relief so they can get back on their feet and rebuild after suffering a difficult time in their lives.

We are committed to helping individuals just like you find an affordable solution to your debt problem.

Watch past users who are just like you explain how it works, and join the millions of others who have gotten a second chance with bankruptcy.

Upsolve is a 501(c)(3) legal aid nonprofit that started in 2016. Our mission is to help low-income Americans in financial distress get a fresh start through Chapter 7 bankruptcy at no cost. We do this by combining the power of technology with pro bono attorneys. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have mission-driven funders that include the U.S. government, former Google CEO Eric Schmidt, and private charities.

To learn more, read our reviews from past clients, or read our press coverage.