Should I file a Chapter 13 Bankruptcy?

Chapter 13 Plan

There are two main reasons that most of my clients file a Chapter 13 Bankruptcy:

First, if you cannot pass the Means Test discussed in my previous blog post, Do I Make Too Much Money to File a Chapter 7 Bankruptcy?, and a Chapter 7 filing is not available, you may still be able to get a partial discharge by filing a Chapter 13 case.  Depending on your individual situation, you may be entitled to a partial discharge of your unsecured debts, which includes credit card bills, personal loans and medical bills.

A Chapter 13 Bankruptcy is a repayment plan over a maximum of five years. However, you may not have to pay back ALL of the unsecured debt.  How much of the unsecured debt you will pay depends on your income and the value of other property you own.

Another reason is: you may be behind on payments on secured loans such as a car loan or a  home loan.  (“Secured” means that the creditor can take your property if you fall behind on payments.)

For example, let’s say you have missed a few car payments.  If you want to keep the car, do NOT file a Chapter 7 case; you need to file a Chapter 13 case or you will lose the car.  If you signed the loan agreement more than 2.5 years (actually, 910 days) before filing the bankruptcy case, you may be able to “cram down” the amount that you will pay in the Chapter 13 case down to the current value of the vehicle.

As another example, you might be behind on mortgage payments for your home loan. If you wish to keep the house, you will need to file a Chapter 13 case.   If you need a loan modification, filing a Chapter 13 case may be your best bet to set up conditions which will result in getting the lender to accept a lower monthly payment, or alternatively helping you to catch up on any arrearage while making regular payments going forward.

(Do NOT file a Chapter 7 case if you are behind on house payments as this will result in the lender seeking permission from the Bankruptcy Court to foreclose on your house. See my post “I Own My Home: Should I file Chapter 7?” for more information.)

A third reason you might want to file a Chapter 13 Bankruptcy as opposed to a Chapter 7 Bankruptcy is if you have property that you cannot fit into exemptions, and you would be better off paying a portion of your unsecured debts so you can keep the unexempt property.  How much of the unsecured debt you must pay would depend on the value of th unexempt property.

There are other situations in which filing a Chapter 13 Bankruptcy is advantageous for a consumer or business debtor, including needing a payment plan to pay old tax debts, or domestic support obligations.

It is highly recommended by the Bankruptcy Court and the Chapter 13 Trustee that you hire an experienced Chapter 13 bankruptcy attorney to represent you for the filing and maintenance of a Chapter 13 case.

See Top 5 Reasons to File a Chapter 13 Bankruptcy
 

7 Responses to Should I file a Chapter 13 Bankruptcy?
  1. Sallie Mitchell
    July 18, 2011 | 12:40 pm

    I just want to say what a professional, knowledgeable, courteous, flexible, and well-informed attorney James Michel has been for me and my case. He is always available to answer any questions that I may have, and, he has been very patient and thorough in explaining the bankruptcy procedures. I am very satisfied with everything James has done, and, he is a really good guy with a great sense of humor!!

  2. […] my articles “Should I File a Chapter 13 Bankruptcy?” and “Top 5 Reasons to File a Chapter 13 Bankruptcy.” 0 Comments – Leave a comment! […]

  3. […] you would like to read about Chapter 13 Bankruptcy, see my blog post:  Should I file a Chapter 13 Bankruptcy? * BAPCPA = Bankruptcy Abuse Prevention and Consumer Protection Act of […]

  4. […] people who are able to get bankruptcy relief under a Fresh Start (Chapter 7) Bankruptcy, or an Individual Repayment Plan (Chapter 13), in which the borrower is eligible pay back part of the debts, according to the […]

  5. Christopher Walker, Bankruptcy Attorney
    August 2, 2013 | 9:49 am

    A good article. I have found that some people file a Chapter 13 to pay taxes also. Nevertheless, the means test, paying secured debt and protecting assets are the three biggest reasons for filing a Chapter 13

  6. Bankruptcy
    September 17, 2013 | 9:41 am

    I agree that one of the primary reasons for filing chapter 13 bankruptcy is the ability to cure long-term debts. Many clients who are behind on car or mortgage payments turn to chapter 13 bankruptcy.

  7. jameswarner
    April 2, 2015 | 5:38 am

    I agree that one of the primary reasons for filing chapter 13 bankruptcy is the ability to cure long-term debts. Many clients who are behind on car or mortgage payments turn to chapter 13 bankruptcy.

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