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What Is Chapter 13 Bankruptcy?

What Is Chapter 13 Bankruptcy? Chapter 13 bankruptcy provides a viable option for those who are unable to qualify for Chapter 7, or for those who wish to keep their assets while still being able to get a better handle on debt. There are several important provisions to be aware of for Chapter 13 bankruptcy, but the main thing to know is that this form of bankruptcy does not simply liquidate debt like Chapter 7; instead, you will repay at least some of the total debt you owe during a three-to-five year period of time, in exchange for keeping your assets.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy has become a very common form of consumer bankruptcy since changes to the bankruptcy code in 2005 made it impossible for many individuals to file Chapter 7. While Chapter 7 has an income cap, wherein you must pass a "means" test or make less than the median income in your state, Chapter 13 does not institute this limitation. Further, while Chapter 7 requires debtors to turn over all non-exempt assets for sale, Chapter 13 does not require this.
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.
This means Chapter 13 bankruptcy allows you to keep your home and other possessions. It may also not be as damaging to your credit as Chapter 7.