If you are under financial stress and wondering how you can deal with mounting debt, bankruptcy may present a solution for you. Chapters 7 and 13 of the U.S. Bankruptcy Code detail two ways individuals may file for bankruptcy.

The process begins with initiating a bankruptcy case, which involves submitting required documentation and a filing fee. Understanding how each of them work can help you figure out the right path for yourself.

In contrast to a Chapter 7 filing, which entails selling off non-exempt assets and paying part of the debt from the proceeds, Chapter 13 has a structured repayment plan as its cornerstone. Over a period of three to five years, a Chapter 13 debtor makes monthly payments to cover all or part of qualifying debts.

Chapter 13 requirements

To qualify for Chapter 13 bankruptcy, you will need to show a regular income that leaves you with disposable funds after you pay for necessities. Eligibility is based on having disposable income left after monthly living expenses, and this disposable income is used to fund the payment plan.

You are required to have income sufficient to pay off the entire debt in three to five years.

The payment plan is a court-approved debt repayment plan that schedules monthly payments to creditors over three to five years. The plan can include mortgage payments, car loans, personal loans, credit card debt, lease payments, and other secured and unsecured debts. You must submit recent federal tax returns as part of your bankruptcy case documentation.

Plan payments are typically made monthly, and payroll deduction can be used to ensure timely payments. The underlying debt and the value of debtor’s assets are considered in structuring the plan. If there are insufficient approved agencies for credit counseling, exceptions may apply.

Consumer debt is protected from collection actions once the bankruptcy case is filed.

Chapter 13 discharges remaining eligible debt at the end of the repayment period, so long as you comply with the payment schedule. Dischargeable debts are eliminated at the end of the plan, but some remaining debts, such as certain tax debts or domestic support obligations, may not be discharged.

However, bankruptcy courts generally want your repayment plan to provide your creditors with at least the same total amount they would get if you opted for a Chapter 7 instead. Unsecured creditors must receive at least as much as they would in a Chapter 7 case, and the plan must comply with bankruptcy law and bankruptcy laws.

What a Chapter 13 can do for you

The major advantage of a Chapter 13 is getting to keep property that may not fall under a Chapter 7 exemption. Another benefit is that you typically get to keep property you owe money on and make up the payments, rather than losing the asset.

This includes catching up on mortgage or car payments and mortgage and car payments through the plan.

Filing a Chapter 13 bankruptcy can help with overdue mortgages and car payments. The process can stop foreclosure proceedings and allow you to make regular mortgage payments to keep your home. You may also be able to make up taxes, alimony, child support and some student loans. Domestic support obligation payments must be prioritized in the plan.

Unlike other debts, however, you typically will need to pay these in full; they will not be discharged at the end of the bankruptcy period. Certain debts incurred, such as recent taxes or property settlements, may also be excluded from discharge.

However, you can still benefit by avoiding interest and penalties that may otherwise accrue as you fall behind. The bankruptcy administrator and bankruptcy trustee oversee the case to ensure compliance with bankruptcy law.

An experienced bankruptcy attorney can review your case and advise you as to whether Chapter 13 or another option would offer the best solution in your situation.

It is important to consult a bankruptcy lawyer to navigate the complexities of filing bankruptcy and creating a feasible wage earner’s plan. Filing bankruptcy can provide debt relief, help protect your credit report in the long term, and release you from personal liability for discharged debts.

Chapter 13 Repayment Plan

Chapter 13 bankruptcy is a powerful form of bankruptcy proceeding that’s specifically designed to help you regain control over your finances when you’re dealing with overwhelming debt and struggling to keep up with your financial obligations.

If you’re facing this challenging situation, Chapter 13 bankruptcy may offer you the path to relief you’ve been looking for. When you file for Chapter 13, you can propose a manageable plan to repay all or part of your debts over a period of three to five years, allowing you to structure your payments in a way that actually fits your budget and helps you avoid the devastating consequences of foreclosure or repossession.

This approach is especially beneficial if you want to protect your valuable assets while working toward the financial stability you deserve.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy, which people often call a wage earner’s plan, is a legal process that can help you reorganize your debts if you have a steady income – and it all happens under the watchful eye of the bankruptcy court.

Unlike Chapter 7, where you’d be looking at liquidating your assets, Chapter 13 focuses on creating a repayment plan that you can actually manage while addressing all your financial obligations. Under this plan, you’ll be able to pay off your secured debts – things like your mortgage and car loans – along with unsecured debts such as those credit card balances and medical bills that have been piling up.

Priority debts, including certain tax debts and domestic support obligations, are also part of the plan. The whole goal here is to help you catch up on those missed payments and gradually pay down what you owe while still covering your regular living expenses – giving you a real path forward instead of just drowning in debt.

The Chapter 13 Bankruptcy Process

When you’re ready to file for Chapter 13 bankruptcy, the process kicks off the moment you submit your petition to the bankruptcy court in your area.

You’ll need to gather and provide detailed financial documents alongside your petition – this includes a comprehensive list of everyone you owe money to, your current income situation, what you’re spending each month, and a complete summary of everything you own.

Before your case can move forward, there’s a requirement you’ll need to tackle: completing credit counseling and submitting that certificate of completion to the court. Once you’ve filed your case, a bankruptcy trustee gets appointed to oversee your situation and make sure you’re sticking to the terms of your repayment plan.

You’ll be making monthly payments directly to this trustee, who then takes care of distributing these funds to your creditors based on the court-approved plan. The repayment period typically runs anywhere from three to five years, and during this time, you’ve got to keep up with those consistent monthly payments and follow all the requirements the bankruptcy court sets for your case.

Credit Counseling Requirements

Before you can move forward with filing for Chapter 13 bankruptcy, you’ll need to complete a credit counseling session with an agency that has been approved by the United States courts.

This required credit counseling isn’t just a formality—it’s designed to help you take a hard look at your financial situation and explore whether there might be alternatives to bankruptcy that could work for your circumstances, such as setting up a debt management plan or securing a consolidation loan.

During your counseling session, the approved agency will go through your income, expenses, and debts with you, and when you’re finished, they’ll provide you with a certificate of completion that you must file along with your bankruptcy petition.

If you skip this step or fail to complete it properly, you won’t be eligible to proceed with your Chapter 13 case, so it’s crucial that you take care of this requirement before you begin the bankruptcy process.