Unlike in a Chapter 7, under a Chapter 13 bankruptcy you still have to repay your creditors. But you might be able to keep property that is secured by a lien. This can save a home from foreclosure or stop repossession of a car.
A Chapter 13 plan can also stop an eviction if the bankruptcy is filed before the 5 day notice. But the eviction only stops if you can pay back the rent owed through the Chapter 13 plan.
There are no limits as to what you can keep in a Chapter 13 bankruptcy. But a creditor can't receive less in a Chapter 13 than they would have received in a Chapter 7.
In a Chapter 13 bankruptcy, you must propose a payment plan to the court. Payments under this plan are made to the trustee. The trustee charges a fee of about 10% of all funds collected. The trustee then gives the money to the creditors.
Before you present a payment plan, you have to show that you can pay your normal monthly living expenses. Normal monthly living expenses include:
The type of income doesn't matter. The income just has to be regular and stable. You must have enough money leftover to make payments on the proposed payment plan. The payments made to the trustee under the payment plan are used to pay off the debts owed.
Sometimes you can't pay off all debts through the payment plan. If this happens, the balance left on the debt might be discharged. You can only get a discharge if you made your best effort to pay.
Liens can't be discharged in this situation. They have to be paid off through the payment plan.
A Chapter 13 bankruptcy lasts for 36-60 months (3-5 years). The amount of time depends on your income.
If your income is more than the state median income, the bankruptcy lasts for 5 years. If your income is below the state median income, it lasts for 3 years.
The Chapter 13 plan only ends before the required time if all debts are paid off.
Conditions for court approval
A Chapter 13 plan won't be approved if you fall behind in child support payments. Your discharge will be denied for the same reason.
If you fall behind in child support payments, the following can happen:
- The bankruptcy is dismissed
- A Chapter 13 bankruptcy is converted to a Chapter 7 bankruptcy