Guide to Chapter 13 Bankruptcy
In Chapter 13 bankruptcy certain debts must be repaid in full. The debts that must be paid in full through your Chapter 13 case include priority tax debt (i.e., tax debt that is too new to be wiped out), child and spousal support arrears, and secured loans where you want to keep the collateral securing the loan.
The Chapter 13 bankruptcy discharge is broader in scope than a Chapter 7 bankruptcy discharge. For example, debts stemming from a payment imposed in family law court that is not a domestic support obligation can be discharged in a Chapter 13 bankruptcy. If in your divorce proceeding the judge said you have to pay some of your ex spouse’s debts, then that judicially created, non-contractual obligation can likely be discharged in a Chapter 13 bankruptcy.
Most people who qualify for a Chapter 7 bankruptcy choose to file under that chapter. There are a few exceptions, however. One exception would be where someone has been divorced and wants to discharge the non-domestic support obligations to the ex-spouse that were imposed in the family law proceedings.
Another example where someone might choose to file Chapter 13, even though they qualify for Chapter 7, is if they want to reorganize their car loan, effectively refinancing their car loan to get a lower rate or a better a lower monthly payment and a lower interest rate.
A Chapter 13 bankruptcy also allows a debtor to “cramdown” a car loan and only pay back the retail value of the car. But this only works where the car loan is more than two and a half years old.
Chapter 13 might also be preferable to a Chapter 7 where it is fairly certain that a Chapter 7 trustee will try to liquidate an asset you want to keep. In those situations, you can file Chapter 13 as an alternative to liquidation—there is no liquidation in a Chapter 13 bankruptcy—and pay for the value of the non-exempt asset over the course of the Chapter 13 plan.
Another reason someone made choose to file Chapter 13 instead of Chapter 7 is to repay priority tax debt over a 5-year period. This is an especially effective tool where the IRS is threatening to garnish or seize assets.
If you try to file a Chapter 13 bankruptcy without an attorney, you are heading for almost certain failure. According to a study conducted by the Bankruptcy Court for the Central District of California, less than 1% of people filing bankruptcy without an attorney were able to obtain confirmation of their plan.
Chapter 13 bankruptcy is very complex. Even less-experienced attorneys have difficulties at times. If you are filing Chapter 13 bankruptcy you would do well to not only hire a bankruptcy attorney, but a bankruptcy attorney that has extensive experience with Chapter 13 bankruptcy and is well-respected by the local Chapter 13 bankruptcy trustees and judges