Chapter 13 bankruptcy is different from Chapter 7. Instead of asking the court to wipe out your debts, you propose a three to five year repayment plan under which you pay all, or a portion of, your debts. To file for Chapter 13 bankruptcy you fill out the same forms as you would for a Chapter 7 case plus your proposed repayment plan. If the court accepts your plan, you make payments to the bankruptcy trustee who distributes a share to your creditors.

There are many reasons why people choose Chapter 13 bankruptcy - and in particular, choose Chapter 13 over Chapter 7. Generally, you are probably a good candidate for Chapter 13 bankruptcy if you are in any of the following situations:

  • You are behind on your mortgage or car loan and want to make up the missed payments and reinstate the original agreement (You cannot do this in Chapter 7 bankruptcy. You can in Chapter 13 bankruptcy.)
  • You owe federal income taxes (Unless you meet several conditions, you cannot discharge federal income taxes in Chapter 7 bankruptcy. You can use Chapter 13 bankruptcy to pay the IRS over time.)
  • You have property you'd lose if you filed Chapter 7 bankruptcy
  • You received a Chapter 7 discharge within the previous six years
  • You have a co-debtor on a personal debt
  • You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so

Chapter 13 Bankruptcy - Are You Eligible?

Chapter 13 bankruptcy has a number of eligibility requirements.

Your debts must not be too high

You will not qualify for Chapter 13 bankruptcy if your secured debts exceed $750,000. A debt is secured if you stand to lose specific property if you don't make your payments to the creditor. Home loans and car loans are common examples of secured debts. But a debt might also be secured if a creditor - such as the IRS - has filed a lien on your property.

In addition, your unsecured debts cannot exceed $250,000. An unsecured debt is any debt for which you haven't pledged collateral. Most debts are unsecured, including credit cards, medical bills, student loans and department store charges.

You must have stable and regular income

This doesn't mean you must earn the same amount every month. But the income must be steady - likely to continue - and periodic - weekly, monthly, quarterly, semi-annually or seasonally.

You must have disposable income

Your income must be high enough so that after you pay for your basic needs, you will have money left over to make periodic payments to the trustee. To determine if your disposable income is high enough, you must create a monthly budget. If the trustee or a creditor thinks your budget includes expenses other than necessities, it may be challenged.

Talk to a Bankruptcy Attorney

For specific advice about your situation, find and talk to a local bankruptcy attorney here.