A Chapter 13 bankruptcy is one that utilizes a payment plan, generally 3 to 5 years in length, to repay creditors either all or a portion of the debt owed. These payments will be pulled from any future income brought in by the debtor. Chapter 13 bankruptcies can be used for a variety of things. Some of these uses may include:
- Paying back taxes
- Halting accrual of interest on tax debt
- Preventing foreclosure
- Catching up any missed home or car payments
- Retaining ownership of any valuable nonexempt property
Keep in mind that this is not an exhaustive list, and that none are guaranteed as each bankruptcy is unique. If you can uphold all the terms set forth in the repayment agreement, any remaining dischargeable debt can be released (usually at the end of the three to five-year period). Through the application of the Washington Means Test, your disposable income will be used to determine the end amount you will be responsible for repaying.
Keep in mind however that this amount will at minimum be the same amount your creditors would receive if had filed a Chapter 7 bankruptcy instead. Two other requirements for filing a Chapter 13 bankruptcy is that there must be some degree of disposable income to use toward the payment plan, and you must also have a steady source of income.
The largest difference between a Chapter 7 and a Chapter 13 bankruptcy is in the focus of the filing. If you are looking to reorganize your debt for easier handling, then a Chapter 13 could be recommended.
This may be the case if you are looking to keep your secured assets because of the amount of equity they contain. Also, if you are looking to take care of overdue payments and to get back to the original payment agreements, and you want to keep any nonexempt property of value, then a Chapter 13 could be right for you. If you are looking to eliminate a large amount of debt and not have to repay it, then a Chapter 7 may be the answer.
Remember that everyone’s circumstances are different and this article is in no way advocating one chapter over another. It will be important to meet with an attorney who can help determine your best course of action.