In Chapter 13 bankruptcy, you propose to your creditors a repayment plan that typically takes three to five years to complete. It offers to pay off all or part of your debt from future earnings you earn. You can use Chapter 13 to make up for missed car payments, pay back taxes owed, prevent a bank from foreclosure on your home, keep non-exempt property you think is valuable, receive interest on your back taxes, and more. If you follow the terms of your agreement to repay your debt, any remaining redeemable debt will be released at the end of the repayment period. The amount of money allocated to creditors under a Chapter 13 bankruptcy must be equal to the amount they would have received had a Chapter 7 bankruptcy been filed. To file for Chapter 13 bankruptcy, you must have a “steady source of income” and disposable income to file for your repayments.
Typically, a Chapter 13 bankruptcy is used when you want to keep secured assets, such as a car or home, where you have more equity in the secured assets that you can protect by using your bankruptcy exemptions. It is a restructuring of the debt you owe to your creditors that are not bad debts.
Chapter 13 bankruptcy allows you to make up your arrears over time and restore your original repayment arrangement. It may also be a better option if you have valuable non-tax-exempt property that you wish to keep. To keep a non-exempt property, you must pay the creditor the value of the property.
An exemption limit would apply to any equity you have in the property. Equity is simply the difference between the value of the property and what you owe on it. For example, if you have a $10,000 truck with a $8,500 loan, the truck only contains $1,500 of equity. If you have a property held by a loan, the equity you own in that property falls under your exemptions. That is, if you are up to date on your payments. If you choose to continue making your normal payments on the loan, you can keep the property throughout and after your bankruptcy period. If the equity isn’t covered by your exemptions, your creditor may choose to sell that asset and then distribute the money resulting from the sale. In this case, you would be entitled to the value of your exemption in the sold asset as a cash payment. Current bankruptcy laws allow a couple filing a full set of exemptions together for each claim, meaning more property can be protected.
The non-recoverable debts that you cannot erase in bankruptcy include debts for personal injury/death caused by DWI/DUI, child support payments, child support payments, debts related to family support, student loans, income tax debts within the last three years, as well as any other other tax liabilities, traffic fine penalties, criminal restitution, and any debts you forgot to declare on your bankruptcy records unless you notify the creditor of your bankruptcy case. Aside from these non-recoverable debts, everything else included in your bankruptcy case will be forgiven at the end of your agreed bankruptcy period.