Chapter 13 is a debt reorganization plan that lasts a minimum of three years but no longer than five years. Some people file chapter 13 because they are ineligible for chapter 7 because of income or because they have filed a chapter 7 within the past 8 years. Others file chapter 13 to stop a foreclosure, repay back taxes or support, protect assets that would be liquidated in chapter 13, modify car loans, or even to eliminate second mortgages from their homes. While chapter 13 does require a monthly payment plan, it rarely results in repayment of all debts.
There are two basic rules that determine how much creditors receive in a chapter 13 bankruptcy. In chapter 13, you must pay the greater of what you can afford to pay on a monthly basis for the length of your plan, or the amount your creditors would have received had you filed chapter 7 bankruptcy and your unprotected assets were liquidated. Often, determining the amount you can afford is more difficult than it sounds because of expense standards used in bankruptcy cases. It is also important to carefully plan steps that can be taken before a case is filed to ensure the greatest chance of success. A bankruptcy lawyer experienced in chapter 13 will help analyze your case to determine whether chapter 13 is appropriate and how to optimize your case.