What is a Chapter 13 Bankruptcy?

Chapter 13 bankruptcy involves reorganization or a repayment plan for individuals or small proprietary business owners (not corporations or partnerships) who meet certain income and debt criteria. Chapter 13 bankruptcy allows a debtor to reduce the amount of debt through a payment plan while retaining certain assets which would otherwise be liquidated in a Chapter 7 bankruptcy. In addition, for debtors who have fallen into arrears on their mortgages, real estate taxes, or car loans, Chapter 13 is an attractive choice as it allows them to force a repayment plan on creditors to repay those arrearages over time. Income tax debt may also be repaid similarly. Many consumers choose this type of bankruptcy if they are trying in good faith to pay back the majority of their debts, or if they are trying to save their house or restructure a car loan. Some typical reasons for filing a Chapter 13 bankruptcy are listed below:

  • Stop a home foreclosure and give the consumer up to five years to become current on their mortgage.
  • Restructure a car loan to either reduce interest, principal, or in some instances, reduce both principal and interest on the car loan.
  • Pay back income taxes without having to pay back all of the accrued penalties and interest.
  • Pay back general unsecured creditors (credit cards or personal loans) without paying back all of the future interest accruing on the account.