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Chapter 13 Bankruptcy FAQ

Get answers to common questions about Chapter 13 bankruptcy.

What is Chapter 13 bankruptcy?

In a Chapter 13 bankruptcy, you use your income to pay some or all of what you owe to your creditors over time from three to five years, depending on the size of your debts and income. In return, you may keep your property.

The most important part of a Chapter 13 bankruptcy is the repayment plan, which describes in detail how (and how much) you will pay for each of your debts. In order for your bankruptcy to go forward, the court must approve your repayment plan and also determine that you have enough income to meet your payment obligations under the plan. To learn more about Chapter 13 bankruptcy, see Nolo's article An Overview of Chapter 13 Bankruptcy.

How much of my debt will I have to repay if I file for Chapter 13 bankruptcy?

How much you must repay depends on the types of debt you have. Here are the general guidelines:

Bankruptcy fees. You must pay 100% of the bankruptcy filing fees, trustee commissions, and your bankruptcy attorney's fees.

Priority debts. You must pay 100% of the following debts: child and spousal support arrears owed to the parent or child; most tax debts except those first due at least three years prior to your bankruptcy filing; wages, salaries, or commissions you owe to employees up to a certain limit; and contributions you owe to an employee benefit fund.

Secured debts. If you want to keep your home or car (or other secured property), you will have to pay 100% of the amount you are behind on the loan. You also have to pay 100% of debt secured because of a tax lien.

Unsecured debts. This is the wild card category. You will pay anywhere between 0% and 100% of the amount you owe, depending on your disposable income, the length of your repayment plan, and the total value of what your creditors would have received had you filed under Chapter 7 bankruptcy. The amount you will pay is generally equal to the value of your property that isn't exempt under the bankruptcy exemption laws (the property you would be likely to lose in a Chapter 7 bankruptcy). To learn more about what you must pay in a Chapter 13 bankruptcy, see Nolo's article Your Obligations Under a Chapter 13 Bankruptcy Plan.

How long will my repayment plan last if I decide to file for bankruptcy under Chapter 13?

The length of your repayment plan depends on your income level. If your monthly income exceeds the median monthly income for a household of your size in your state, your plan must last five years unless you can propose a plan that pays 100% of your unsecured debt in a shorter period of time. If your income is less than the median monthly income for your state, you can propose a three-year plan, even if your unsecured creditors cannot be fully repaid during that time. To learn more about what your repayment plan must include, see Nolo's article Your Obligations Under a Chapter 13 Bankruptcy Plan.

We're facing foreclosure. If we file for Chapter 13 bankruptcy, can we keep our home?

Chapter 13 bankruptcy may be a good option if you're trying to save your home from foreclosure. Chapter 13 bankruptcy lets you pay off a mortgage "arrearage" (late, unpaid payments) over the length of your repayment plan usually between three and five years. In order for this to work, you'll need enough income to meet your current mortgage payment at the same time you're paying off the arrearage.

Once you file your Chapter 13 bankruptcy petition, the "automatic stay" stops foreclosure proceedings until your repayment plan is approved (or rejected) by the court. If approved, the mortgage lender is then bound by the plan and must accept payments towards the arrearage over the length of your repayment period. If you make all the required payments up to the end of the repayment plan (and keep current on your regular monthly mortgage payments), you'll avoid foreclosure and keep your home. To learn more about how Chapter 13 bankruptcy can help homeowners, see Nolo's article Your Home in Chapter 13 Bankruptcy.

My only income is from retirement benefits. Can I use those to fund a Chapter 13 repayment plan?

An important part of a Chapter 13 bankruptcy plan is proving to the judge that you have enough reliable income to meet your payment obligations. Courts allow debtors to use income from many sources to fund their plan, and income from retirement benefits is included in the long list. To learn about other sources of income that may be used to fund a repayment plan, see Nolo's article Are You Eligible for Chapter 13 Bankruptcy?

Along with other debt, I owe back taxes to the IRS. Can Chapter 13 bankruptcy help?

One advantage of Chapter 13 over Chapter 7 bankruptcy is the debtor's ability to deal with debt that would not be wiped out in Chapter 7 bankruptcy including tax debt. (Other debts that cannot be canceled in Chapter 7 bankruptcy include child and spousal support arrears.) Although you must repay 100% of your tax debt (unless it qualifies for discharge because of its age), you may do so over the course of your Chapter 13 repayment plan, which usually lasts from three to five years. To learn more about the advantages of Chapter 13 bankruptcy, see Nolo's article Reasons to Use Chapter 13 Bankruptcy Instead of Chapter 7 Bankruptcy. Or, for more in general on the Chapter 13 bankruptcy process, see Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time, by Stephen Elias and Robin Leonard (Nolo).