What Is Chapter 13 Bankruptcy?


Unlike Chapter 7 Bankruptcy, Chapter 13 does not immediately discharge debt. Rather, it is a form of court protection from creditors as an individual works with a structured plan to pay off debts as best as they can.

Chapter 13 can be used to stop foreclosures, repossessions, IRS levies and even wage garnishments. It has pros as well as cons, and depending on the specific financial circumstances of the debtor, it could be the perfect plan.

Why Would Someone File Chapter 13?

Chapter 13 gives an individual an extended period of time to pay off debt, protect their assets and improve credit. There is more flexibility in that a person can structure a repayment schedule that works with their financial situation.

A Chapter 13 plan requires that the debtor make a good faith effort to pay their debts over a 36 to 60 month period of time. Whatever unsecured debts they have left at the end of that period are then legally discharged (cancelled).

The debtor can make the monthly plan payments fit what they can actually afford to pay. Unsecured creditors cannot put them under an obligation to pay in full under Chapter 13, which is an immense relief. Debts are paid out of what is referred to as an individual's "disposable" income.

This means that the court looks at what income someone has after necessities such as food, shelter, transportation and medical needs are paid. Any remaining income is put toward repaying debts through a payment plan.

Individuals can file chapter 7 bankruptcy once every eight years. However, in the event that someone runs into another financial situation where they need to file bankruptcy again before the eight year period hits, they can always file Chapter 13 and get a repayment plan created.

It is not an ideal situation for everyone, but it is nice to have that option available. Chapter 13 can be filed repeatedly, but do keep in mind that every time a person files, the filing will appear on their credit report. If that person hopes to purchase a home in the future, they will want to be careful how many time bankruptcy case filing appear on your report.

The Cons of Filing Chapter 13

Declaring bankruptcy under Chapter 13 can make it harder to declare under Chapter 7 later. Once a person files for Chapter 13 Bankruptcy, they will not be able to file for Chapter 7 for the next several years.

Once exception is if an individual receives a Chapter 13 discharge in good faith after they have repaid at least 70 percent of their unsecured debt. Then the time bar will not apply.

A person may not be allowed to file for Chapter 13 bankruptcy if they have filed either a prior Chapter 13 or Chapter 7 case that was dismissed within the previous 180 days (6 moths) due to a violation of a court order or a request for a dismissal after a creditor asked for relief from the automatic stay.

Once someone has filed for bankruptcy, either Chapter 7 or Chapter 13, they may find it extremely difficult to get a mortgage until after two years has passed. During the underwriting process, the fact that they have filed for bankruptcy could raise some red flags. In this case, they will need to seek out a lender who specialized in lending to individuals considered as risky. These lenders specialize in assisting home buyers who are facing this huge hurdle.

What Does Not Apply

Secured and unsecured debts are the types of obligations that are applicable to Chapter 13 bankruptcy. The debtor will be expected to continue making payments on certain specific obligations, including mortgage, auto and other legal obligations.

One of the most important limitations in bankruptcy is debt that is classified as "priority" debts. These include alimony, spousal maintenance, and child support.

Priority debts are not discharged in bankruptcy. Bankruptcy will, however, allow the individual to repay the priority debt and relieve them from having to repay other obligations. This makes it easier for them to repay the priority obligations.

Unfortunately, debtors are limited in discharging student loan debt. If the person can prove circumstances of undue hardship, following a special petition to the court, they may be either relieved or the obligation or receive a stay of collection activity.


An experienced Texas bankruptcy lawyer can help to determine whether Chapter 13 is the best way possible to manage debts and can help address any concerns about the bankruptcy process.

Call the Law Office of Marilyn D. Garner TODAY at 817.381.9292 to schedule a free confidential consultation to discuss how a Chapter 13 bankruptcy may help.

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