Chapter 13, Title 11, United States Code, or chapter 13 allows an individual to restructure their finances under the supervision of a federal court.  This structured reorganization allows a debtor who has regular income to retain secured assets providing that the debtor is able to maintain a payment schedule set forth and regulated by the federal court system.  This payment schedule usually will exist over a period of 36 to 60 months and begins 30 to 45 days after the case has begun.  Once a case has been assigned to the supervision of the courts credit collection agencies may not contact the debtor and must deal with the courts directly.  This process usually allows the debtor to pay less than owed and relieves the harassment from said agencies.  One of the main attractions to chapter 13 includes its ability to stop foreclosures though proceedings may begin after the pendency period is over.

Under the Fair Credit Reporting Act chapter 13 bankruptcies may remain on an individual’s credit rating for up to ten years.  Additionally the debtor is forbidden from getting credit cards or loans during the pendency period (36-60 months) and quite often if able to get a loan after this period the debtor will be subject to low loan amounts and high interest rates, but this should come as no surprise.

In a Chapter 13:

  • You will make a list of debts you owe
  • You will create a repayment plan, which must be approved by creditors. The amount you will pay to the creditors on a monthly basis will be based on your income; however, creditors will generally receive more repayment than they would under Chapter 7.
  • You will need to fulfill the terms of the repayment agreement, which extend for anywhere from three to five years depending on your income and debt load.
  • At the end of this period, any remaining debts you had originally owed are forgiven or discharged and the bankruptcy filing is complete.

 

What kinds of debts are discharged in Chapter 13?

Dischargeable Non Dischargeable
Personal loans long term debts such as a home mortgage
Credit cards Government funded or guaranteed educational loans
Debts due to fraud, false representations, embezzlement or larceny Payments imposed on the debtor due to criminal convictions
Certain income tax debts Debts for alimony
Debts incurred by willful and malicious injury to another person or their property. Maintenance and support obligations
Mortgage Debts incurred due to death or personal injury caused by driving as a result of intoxication or under the influence of drugs