Chapter 13 Bankruptcy Explained

Chapter 13 bankruptcy is designed for individuals who have gotten behind on house and/or car payments, or who owe substantial tax debt and need a structured plan of repayment to the IRS or state. Another reason people file Chapter 13 bankruptcy is their income is too high under the Means Test to file Chapter 7.

Chapter 13 bankruptcy provides individuals with the opportunity to pay their delinquent house and/or car payments over the period of 3 to 5 years, instead of all at once.  During the term of the Chapter 13 case, the individual must resume making the regular monthly mortgage payments and also make a Chapter 13 Plan payment, a portion of which goes to the mortgage holder(s) to pay down the delinquent payments.  If you are delinquent with car payments, Chapter 13 allows you to repay the balance of the car note over the period of 3 to five years, regardless of the original term of the note, and may provide for a reduction of the interest rate on the car note.  

When a Chapter 13 is filed, the debtor is also protected by an “automatic stay” similar to a chapter 7. While the automatic stay is in place creditors cannot try to collect against you, unless they get special permission from the courts. This includes harassing phone calls, collection letters, wage garnishments, foreclosure actions, repossessions, lawsuits, and utility shutoffs.

Before you file a Chapter 13 case, we determine the monthly amount required to be paid into your Chapter 13 Plan and you determine whether you can afford the Plan payment.  In most cases, our clients find the monthly Plan payments fit comfortably within their budget without affecting their standard of living.

For individuals who owe substantial tax obligations (commonly self-employed or other small business owners) Chapter 13 offers the opportunity to repay tax debt over a much longer period than the IRS or Wisconsin Dept. of Revenue will allow outside of bankruptcy.  In some cases, the Chapter 13 can eliminate tax debt (typically requires that the tax be for a tax period at least 3 years old) and can eliminate penalties and interest on other tax debt.

Although there is a trustee in every Chapter 13 case, Chapter 13 greatly differs from Chapter 7 in how the case is administered. The debtor remains in possession and control of that property throughout the Chapter 13 case without interference from the trustee. If the debtor is in business, the debtor can continue to operate that business during the course of the Chapter 13 case.

Chapter 13 is truly a unique opportunity to regain control of your finances and repay all, or in many cases just a portion, of your debt obligations in a reasonable time with the protection of the courts.

F&Q - Chapter 13 Bankruptcy

What if I realize I cannot afford my Chapter 13 plan while in the middle of my bankruptcy?

What if I miss a payment to the Trustee?

What Can Chapter 13 Bankruptcy Do For Me?

Can I pay off the Chapter 13 plan early?

If I have extra money at the end of the month, should I pay it to the trustee?

Can I keep my home in a Chapter 13 Bankruptcy?

Can I keep my vehicle while in Chapter 13?