Chapter 13 is a little different than Chapter 7 Bankruptcy. A Chapter 7 Bankruptcy typically “wipes out” your debt. With a Chapter 13 Bankruptcy, you may have to pay back a portion of your debt over a period of time.
Chapter 13 is often preferred over Chapter 7 because it typically allows you to protect your property and assets. With a Chapter 7 Bankruptcy, your assets may be liquidated as a means of repaying some of your debt. Chapter 13 doesn’t require you to do this as Chapter 13 is more of a way to restructure or “reorganize” your debt so that it is more manageable.
Chapter 13 also provides a great opportunity to bring past due mortgage payments current, to pay recent tax debts in full, or to catch up on unpaid child support obligations.
Who is eligible?
Chapter 13 is often called the “Wage Earner’s Plan” because the eligibility for Chapter 13 is not determined by income. Chapter 13 is an option for individuals, couples, and sole proprietors (not corporations) who are struggling financially regardless of income. That said, since Chapter 13 requires that you repay a portion of your debts, you will have to prove to the court that you have enough income to support your payment obligations. If you don’t have sufficient income, you may not be eligible to file for Chapter 13 and will have to explore other options like Chapter 7.