What is a chapter 13 plan in bankruptcy?

Q: Will Chapter 13 take all my money?

No, Chapter 13 does not take all your money. Instead, it requires you to use your disposable income to fund a repayment plan for your debts. You will retain enough income to cover reasonable living expenses. The goal is to pay off debts over time while still maintaining your ability to support yourself and your family.

Full question:

What is a chapter 13 plan in bankruptcy?

Category: Bankruptcy
Date: 04/07/2025
State: Alabama

Answer:

A Chapter 13 plan generally means a plan for repayment of debt approved by the bankruptcy trustee. Some debts under the plan must be paid in full (back taxes and child support are the most common examples), while others may be paid only in part. The basic idea is that you must devote all of your disposable income to whatever plan is approved by the bankruptcy court.

With a few exceptions, Chapter 13 doesn't require you to give up any property -- for that reason, it's the bankruptcy of choice for folks who have significant amounts of nonexempt property. If you do file for a Chapter 13 bankruptcy, the minimum amount you will have to pay is roughly equal to the value of your nonexempt property. Since very few prospective Chapter 7 bankruptcy filers have much nonexempt property, this won't be an issue for most people. In addition, you must pledge your disposable income (net income less reasonable expenses) over the life of your plan.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

How does a Chapter 13 plan work?

A Chapter 13 plan involves creating a repayment schedule for your debts, which must be approved by a bankruptcy trustee. You will propose a plan detailing how you will use your disposable income to pay off creditors over three to five years. Certain debts, like child support and taxes, must be paid in full, while others may be paid partially. The plan allows you to keep your property while making payments, which is a key advantage of Chapter 13.

What will I lose if I file Chapter 13?

Filing Chapter 13 generally allows you to keep most of your property, but you may lose nonexempt assets if you don’t meet your repayment obligations. Additionally, if you fail to make the required payments, you risk having your bankruptcy case dismissed, which could lead to losing any protections against creditors. It's essential to comply with the repayment plan to avoid these risks.

What is the downside of Chapter 13?

The main downside of Chapter 13 is the commitment to a repayment plan that can last three to five years, during which you must use your disposable income to pay creditors. This can limit your financial flexibility. Additionally, if you miss payments, your case may be dismissed, and you could lose protections against creditors. It may also impact your credit score for several years.

Will Chapter 13 take all my money?

Why do so many Chapter 13 bankruptcies fail?

Many Chapter 13 bankruptcies fail due to missed payments or changes in the debtor's financial situation, such as job loss or unexpected expenses. If you cannot adhere to the repayment plan, the bankruptcy court may dismiss your case. Additionally, failure to provide necessary documentation or to comply with court requirements can also lead to failure.