Considering Chapter 13 Bankruptcy

My Favorite Type of Bankruptcy

Obviously, I’m going to get a lot of questions about bankruptcy because that’s my job.  I help people navigate the bankruptcy process. One question I get a lot is: “What is the best type of bankruptcy?”  That’s a question that is impossible to answer in generic terms because each person, family, or business has a unique situation and some “types” of bankruptcy (different Chapters of the US Bankruptcy Code) are better for some people while other types are better for others. 

However, without question, my favorite “type” of bankruptcy is Chapter 13 Bankruptcy.  While Chapter 7 is the quickest way for a debtor to get a discharge, it can be more painful given some assets can be liquidated in the process. Chapter 13 does take much longer to get to discharge but it can be a friendlier place for a debtor to be because the debtor (the person filing the bankruptcy) can keep control over their assets. 

A huge benefit to Chapter 13 is that the debtor is allowed to keep and use all property and they get to resolve their debt and protect non-exempt assets out of future income.  Basically, Chapter 13 is a repayment plan of 3-5 years. A huge misunderstanding out there is that you have to pay all your debts through Chapter 13. That’s just not true!  There are Chapter 13 cases where the debtor pays 100% of all timely filed, allowed claims, but those are the exceptions.  Most Chapter 13 cases have a very small repayment to unsecured creditors. 
Chapter 13 can offer a lot of options that can provide relief to the debtor. Many of these options are not available in Chapter 7 so Chapter 13 is often a much better choice for a debtor, but it does take a long time to complete and that is a major drawback.

Chapter 13 is often better for debtors because it can provide a lot of relief such as:

  • Stop foreclosure and cure home arrears
  • Pay off priority taxes through the plan
  • Cram down on vehicle (lower car payment and interest rate)
  • Protect non-exempt assets
  • Strip off a 2nd mortgage 
  • Extended protection from student loans
  • There are a lot of other good reasons to file Chapter 13!

As a lawyer who practices consumer bankruptcy, I absolutely love Chapter 13. It can provide incredible relief to good people who are struggling with debt while at the same time protecting their assets (whether exempt or not). In my opinion, Chapter 13 is the best part of the Bankruptcy Code when looking for relief for normal people.