Chapter 13 Bankruptcy Basics

Most people who file for bankruptcy protection opt for the simpler, and faster chapter 7 case. However, chapter 13 is an excellent option for certain situations, especially for homeowners who have become unable to keep up on their mortgage.

Overview of Chapter 13

In a chapter 13 bankruptcy, the court and bankruptcy trustee will determine your disposable monthly income by subtracting allowable expenses from you gross monthly income.

From this monthly disposable income amount, you and your bankruptcy attorney must build a monthly payment plan that covers secured debts and priority unsecured debts such as family support obligations and unpaid taxes.

Other unsecured debts such as credit cards, medical bills and personal loans will only be repaid as much as is possible with the remainder of the disposable income.

More on the Monthly Payment Plan

One of the most prevalent misconceptions about chapter 13 bankruptcy is that all debts must be repaid. This is not the case. Only that debt that you can afford to repay will be included.

If a proper plan is created prior to filing for bankruptcy protection, most of the unsecured debt can be discharged.

In many cases, petitioners with over $100,000 in unsecured debt can have monthly payments as low as $100.

Chapter 13 for Homeowners

Homeowners who are struggling with mortgage payments may also have some options for relief under chapter 13. If you have been trying to get a loan modified and have been unsuccessful, your bankruptcy attorney can often force the lender to accept modified loan terms.

Talk to an Attorney

Chapter 13 bankruptcy is a complicated process, much more so than a chapter 7 case. While the petition process is very similar, the legal strategy prior to filing is critical to ensure you get into a monthly payment that will be reasonable and easy to complete.