CHAPTER 13 BANKRUPTCY
Chapter 13 is reorganization bankruptcy. It works similarly to debt consolidation but it actually works, whereas debt consolidation is often ineffective. Typical Chapter 13 filers are above median income, have assets, or they don’t pass an insolvency test. In Chapter 13, there is a consolidated monthly payment plan (paying a percentage of unsecured, non priority debts) for 3 to 5 years.
Those who are not eligible for Chapter 7 bankruptcy due to being above median income or not passing an insolvency test may still have Chapter 13 as an option. There are some restrictions as to who can file Chapter 13 (including an unsecured debt limit), but it is an option for many people if you are ineligible for Chapter 7 based on IRS standard expenses.
If you are above median income, don’t pass an insolvency test, have made certain types of transfers, or if you have assets that could be sold or seized in Chapter 7, if you had a Chapter 7 within the last 8 years, or for many other reasons, Chapter 13 may be an option instead.
There are some debts that are included in a Chapter 13 that cannot be discharged in Chapter 7 bankruptcy, such as priority IRS and state income tax debt, unsecured 2nd mortgage liens, post petition HOA debt, MVA and Central Collection Unit debt, tickets and certain divorce related debts, etc.
Chapter 13 permits the debtor time to include priority taxes; allows people to stop a foreclosure and catch up on mortgage and vehicle arrears; may eliminate unsecured second mortgages; crams down vehicle loans, keeps non-exempt assets, bifurcates liens, strips liens, among other benefits.
Chapter 13 Plans are not identical in terms of the benefits you can get. You need an attorney who can represent your interests in a legal proceeding through a legal process, in order to give you the best chance at claiming the full benefits of Chapter 13 bankruptcy.
Filing for bankruptcy is a serious legal proceeding that can severely affect your financial life and overall well being. It is important to have an experienced expert help you through the process.