Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a reorganization program designed for individuals, including sole proprietors and independent contractors, but not business entities such as a corporation. In a Chapter 13 bankruptcy, you prepare and file the same basic forms as you do in a Chapter 7 bankruptcy. However, you also propose a three or five year plan under which you typically must repay certain types of debts in full and usually some portion of your unsecured debt (from 1% upward) even though some judges will approve of plans that pay 0% of unsecured debts. Chapter 13 provides some remedies that are not available in Chapter 7 bankruptcy – such as the opportunity to pay off missed mortgage payments over the life of the plan – but usually is not in the bankruptcy of choice because of the extra legal fees it entails, and because people would rather get their fresh start in three months instead of three to five years. However, 10% to 15% of the people who file under Chapter 7 are required by the bankruptcy court to convert to Chapter 13, because they have sufficient income to fund a Chapter 13 plan.