Chapter 7 vs. Chapter 13?

Chapter 13 debtors use this provision of the Bankruptcy Code to save homes from foreclosure or cars from repossession by filing a Chapter 13 plan along with their bankruptcy petition. There are many other good reasons to file Chapter 13 but these are the two major ones. The debtor gets 3 to 5 years to catch up on missed payments while making regular current payments on mortgages and car or other loans. People who file Chapter 13 bankruptcy cases get to keep most if not all of their property so long as they make the payments called for under their Chapter 13 plan.

The successful Chapter 13 debtor must have income above living expenses. A budget and proof of earnings are submitted to the Court and the Chapter 13 standing trustee. The budget must be reasonable and fair. The Court must approve the debtor’s repayment plan. Generally, the plan is approved or confirmed if it complies with the applicable provisions of Chapter 13.

In Chapter 13 the debtor must make payments to the Chapter 13 trustee starting during the first month after the petition is filed. If a debtor files a Chapter 13 case on February 1, the first monthly plan payment should be made to the trustee on March 1. All plan payments must be made since this shows the bankruptcy judge that the debtor can handle the payments under the plan. The trustee will send the debtor a list showing what money was collected from the debtor and paid out to the creditors. The trustee gets a small percentage of the money paid by the debtor.

After the debtor has made all payments called for in the plan and the trustee has disbursed the money to creditors, the debtor will be sent a discharge. No longer is any money owed except for mortgages. Some debts may be eliminated without paying anything on them or substantial less than what is owed and only what the collateral (property) may be worth.This is called ‘cram down’. This can be made part of a Chapter 13 plan.

On-Line Chapter 13  Calculator: You can use this Calculator to see whether you should select a Chapter 7 vs. a Chapter 13 Bankruptcy.
(Courtesy of Attorney Robert Grossbart)