What is chapter 13 bankruptcy?

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For consumer bankruptcy there are generally two types of bankruptcy, chapter 13 and chapter 7. The two types differ in several respects. Here is the basic information about chapter 13.

If you don’t qualify for a chapter 7 bankruptcy or you want to keep certain secure property like your house or have debts that can’t be eliminated by bankruptcy, you will need to file a chapter 13 bankruptcy. The main difference between a chapter 7 bankruptcy and a chapter 13 bankruptcy is the length of time before it is discharged.

In a chapter 13 bankruptcy you will be making monthly payments to your creditors for up to 5 years (60 months). In chapter 13 your attorney will help make a plan for you in which you pay a trustee a certain amount of money every month. The trustee is responsible for paying any creditors.

Certain debts have priority like taxes, student loans, alimony or child support, and these will be paid off, including the arrears. The good thing is that the penalties and interest stop accruing when you file. This means that your credit score, while initially taking a big hit, will eventually go up as those debts are shown as paid on time.

Any unsecured debt that you have will also be paid if there is any money left after your priority debts are paid by the trustee. This is often much less than the amount you owe, and sometimes the unsecured creditors get nothing, but after your bankruptcy is discharged, the debts are considered “paid in full.”