Chapter 13

Bankruptcy Chapter 13 is for individuals with regular income to pay back their creditors based on how much they can actually afford. The debtor proposes a plan to the court detailing how much will be paid to each of the creditors. Once that plan gets approved by the judge, the debtor makes one monthly payment to the trustee for either 3 or 5 years and that payment will get distributed to the creditors.

How is a Chapter 13 different than a Chapter 7 bankruptcy?

The main difference between chapter 7 and chapter 13 is that under chapter 7 the debtor’s nonexempt property (if any exists) is liquidated to pay off any of the debtor’s debts, while in most chapter 13 cases a portion of the debtor’s future disposable income is used to pay off as much of the debtor’s debt as possible considering the circumstances that he or she is under.

Practically speaking, under chapter 7 the debtor loses all or most of his or her nonexempt property and receives a chapter 7 discharge, which completely gets rid of most of the debts. Under chapter 13, the debtor usually gets to keep his or her nonexempt property, must pay off as much of his or her debts as the court deems feasible, and receives a chapter 13 discharge, which is broader than a chapter 7 discharge and releases the debtor from liability for several types of debts that are not dischargeable under chapter 7.

However, a chapter 13 plan normally lasts 3 to 5 years while a normal chapter 7 only lasts around 3 months and a chapter 13 is usually more expensive for the debtor.

What are some of the advantages of filing a Chapter 13?

  • One of the greatest advantages of filing a chapter 13 is that you can save your house from foreclosure.
  • Allow you to pay back your delinquent mortgage payments over the course of the bankruptcy.
  • You will have no more direct contact with the creditors. You will make one lump sum payment to the trustee and that will be distributed to each of the creditors. This will give you some peace of mind and not have to deal with annoying collection phone calls anymore.

How long will my repayment plan last under a Chapter 13 bankruptcy?

This all depends on your income. If your monthly income is greater than the median income for a family of your size in Michigan then your plan will last 5 years. If your monthly income is less than the median income for your household size then your plan will only last 3 years.