What Should I Know About Chapter 13 Bankruptcy?

Deciding to seek bankruptcy protection isn’t easy. You may have tried to overcome your debt for years, but a recent hospitalization grew your debt even more. Now, you are ready to file bankruptcy but have another tough choice to make: Should you seek Chapter 7 bankruptcy or Chapter 13 bankruptcy?

Chapter 13 bankruptcy basics

When people think of what filing bankruptcy means, they often think of what Chapter 7 entails: discharging nearly all your debts through bankruptcy. However, some people decide to seek Chapter 13 bankruptcy, where debtors reorganize their debt. Some of the reasons people choose Chapter 13 bankruptcy include the following:

  1. They make too much money to qualify for a Chapter 7 bankruptcy (you must pass a means test to qualify for Chapter 7).
  2. They can pay off their past-due debts within three to six years (including tax debt and child support debt).
  3. They don’t want to turn over property, such as recreational vehicles or furniture, that they might have to in a Chapter 7 bankruptcy.
  4. They don’t want their bankruptcy to show up on a credit report for 10 years. With Chapter 13, your bankruptcy is on your credit report only for seven years.

However, if you get behind while paying your home mortgage or car payments while in Chapter 13 bankruptcy, your lender could still ask the court for permission to foreclose on your home or repossess your vehicle. You also have to keep current on paying your other bills.

Ultimately, only about half of people who seek Chapter 13 bankruptcy complete their payback plan. You are more likely to be successful completing Chapter 13 bankruptcy if you get an attorney’s help in your case. Going through bankruptcy is a difficult, complex process and you want to set yourself up to succeed.