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What is Chapter 13 Bankruptcy?


This article explains Chapter 13 Bankruptcy basics.

Here, learn some essentials about Chapter 13 bankruptcy, including who can file, how much it costs, and how payments are calculated. Chapter 13 is a form of bankruptcy that lets individuals pay off their debts over a period of 3-5 years while keeping some assets.

Who can file for Chapter 13?

People above the median income must file under Chapter 13 unless most of their debt is business debt.  It is presumed that if someone over-income files Chapter 7, they are abusing the system. For people below the median income, there is no presumption of abuse. 

How long does a Chapter 13 bankruptcy case take?

A typical Chapter 13 lasts anywhere from three to five years.  

Can you pay your Chapter 13 filing fee in installments?

Chapter 13 debtors can ask to pay the filing fee in installments. The form for applying to pay the filing fee in installments is at Application for Individuals to Pay the Filing Fee in Installments.  

Does a Chapter 13 debtor have to repay all the debt to every creditor?

In Chapter 13, the debtor must file a plan to repay creditors and make monthly payments to the Chapter 13 trustee as the plan requires. If the debtor doesn't make the required plan payments, the entire case will be dismissed, and none of the debts will be discharged (legally eliminated).  

Chapter 13 does not require the debtor to pay every creditor in full. Sometimes it's possible to pay just a percentage (even 0%) to some or all unsecured creditors and even pay less than 100% (called a cramdown) to some secured creditors. 

How do you calculate how much a Chapter 13 debtor must pay the trustee?

The amount that a Chapter 13 debtor must pay the trustee per month under the Chapter 13 plan is determined by two factors: 

  1. How much disposable income (money available for the debtor to pay the trustee after reasonable, necessary expenses are budgeted) the debtor has to pay to the trustee each month, and
  2.  How much the debtor must pay to meet the minimum confirmation requirements based on the types of creditors and the amount of debt owed to those creditors.

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