Chapter 13 Bankruptcy

Chapter 13

Another option for bankruptcy for individuals is the Chapter 13.  This is more commonly known as a reorganization bankruptcy.  Chapter13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years.

This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.

There are many reasons why people choose Chapter 13 bankruptcy instead of Chapter 7 bankruptcy. Generally, you are probably a good candidate for Chapter 13 bankruptcy if you are in any of the following situations: 

  1. You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so. You may think filing Chapter 13 bankruptcy is simply the “Right Thing To Do” rather than file Chapter
  2. You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy.
  3. You need help repaying your debts now, but need to leave open the option of filing for Chapter 7 bankruptcy in the future. This would be the case if for some reason you can’t stop incurring new debt.
  4. You are a family farmer who wants to pay off your debts, but you do not qualify for a Chapter 12 family farming bankruptcy because you have a large debt unrelated to farming.
  5. You have valuable nonexempt property. When you file for Chapter 7 bankruptcy, you get to keep certain property, called exempt. If you have a lot of nonexempt property (which you’d have to give up if you file a Chapter 7 bankruptcy), Chapter 13 bankruptcy may be the better option.
  6. You received a Chapter 7 discharge within the previous eight years. You cannot file for Chapter 7 again until the eight years are up.

A Chapter 13 can be filed if: 

  • The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago
  • The debtor received a discharge under Chapter 13 more than two years ago.
  • You have a co-debtor on a personal debt. If you file for Chapter 7 bankruptcy, your creditor will go after the co-debtor for payment. If you file for Chapter 13 bankruptcy, the creditor will leave your co-debtor alone, as long as you keep up with your bankruptcy plan payments.
  • You have a tax debt. If a large part of your debt consists of federal taxes, what happens to your tax debts may determine which type of bankruptcy is best for you.

As of October 17, 2005, new bankruptcy laws took effect for all three types of bankruptcy.  When it comes to Chapter 13, you cannot file this way unless the following conditions are met:

  • The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago.
  • The debtor received a discharge under Chapter 13 more than two years ago.
  • When a motor vehicle was purchased within 910 days (2 1/2 years) of the filing and a secured creditor has a lien on it, the creditor retains the lien until payment of the entire debt has been made.
  • The following debt is NOT discharged:
  • debt for trust fund taxes;
  • taxes for which returns were never filed or filed late (within two years of the petition date);
  • taxes for which the debtor made a fraudulent return or evaded taxes;
  • domestic support payments;
  • Student loans;
  • Drunk driving injuries;
  • Criminal restitution;
  • Civil restitutions or damages awarded for willful or malicious personal actions causing personal injury or death.
  • All tax returns for the four years prior to filing Chapter 13 must be filed.
  • Debtors must provide to the trustee, at least seven days prior to the 341 meeting, a copy of a tax return or transcript of a tax return, for the period for which the return was most recently due.