What Is a Chapter 13 Bankruptcy Plan?

Chapter 13 is called "debt adjustment."

It's a plan where you can reduce your debts, change the terms of contracts, and get out of default. In Chapter 13, you may be able to keep assets that you'd otherwise lose in Chapter 7, save your home fromforeclosure, and/or save your car from getting repossessed.

What's Good about Filing Chapter 13 in Northern Illinois?

You don't have to build a Chapter 13 plan from scratch (because the bankruptcy court has a model plan that you're required to use), but adequate working knowledge of the intricate requirements of Chapter 13 is still necessary to ensure that the plan will go through. If you have any questions about this, feel free to call us at 1-888-542-1900 or contact us online. We offer free consultations.

What's In a Chapter 13 Bankruptcy Plan?

The Bankruptcy Code spells out what the plan should look like. While repayment of debts is a hallmark of Chapter 13, you generally will not have to repay 100 percent, which means that you can get the debt relief you need - on top of keeping your home and car, depending on the circumstances.

  • Your home and mortgage. You have the right to "cure" a mortgage default by repaying the arrears "within a reasonable time," up to 5 years, while keeping the current monthly payment. This is a key provision used by people who want to save a property that's in foreclosure or is about to be. But the plan cannot modify a mortgage in any other way, including reducing the monthly payment, principal balance or interest, if the mortgage is secured solely by the debtor's principal residence.
  • Your car and auto loan. Whether or not you're behind on your auto loan payments, you can keep your vehicle by paying the loan through a Chapter 13 plan, often with lower interest, lower monthly payment, longer payment period and/or reduced principal balance.
  • Taxes, child support, etc. Other debts you're behind on called "priority claims" can also be paid through the Chapter 13 plan. These are often back taxes or domestic obligations like child support.

A Final Word about the Chapter 13 Bankruptcy Plan

There are a number of "tests" that a Chapter 13 plan must pass before it will be approved by the bankruptcy court. Some of these tests are extremely complex.

These are: the good faith test, which means that the plan is not being used to abuse the system; the liquidation test, which means that general unsecured creditors will get paid at least what they would have under Chapter 7; the disposable income test, which requires the debtor to devote all projected disposable income to paying unsecured claims; and finally, the feasibility test, which means that the debtor has enough income to follow through on the plan.

Call the Cook County Bankruptcy Attorneys of Ledford, Wu & Borges, LLC

We know this is a lot of information. Again, if you have any questions about Chapter 13 bankruptcy or the plan, call 1-888-542-1900 or send us an email for a free consultation directly with a dedicated consumer bankruptcy lawyer.