Chapter 13 Bankruptcy

What is Chapter 13 Bankruptcy?

Consumers needing relief may file for a Chapter 13 bankruptcy, which provides additional benefits and burdens compared to a Chapter 7 filing.  Chapter 13 requires the debtor to have a regular source of income and is commonly referred to as a "wage earner" bankruptcy.  Chapter 13 also requires the debtor to create and file a plan to repay creditors.  The repayment plan may last up to 3 or 5 years depending on the debtor's income.  Upon the completion of the repayment plan, a debtor will receive a discharge for the dischargeable debts according to the terms of the plan.  

What are the main benefits of filing a Chapter 13 bankruptcy?


Opportunity to Draft the Repayment Plan

Chapter 13 provides the debtor with an opportunity to propose a repayment plan to pay creditors.  Creditors cannot draft the repayment plan for a debtor or force a debtor to accept certain terms.  The opportunity to draft and control the plan provides a debtor with the flexibility necessary to draft a repayment plan that he or she can complete.  Completing the plan is necessary for a discharge in most circumstances unless the debtor cannot complete the plan due to hardship.

Debtor Keeps All Property of the Estate

Another major benefit is the debtor generally gets to keep all of the property of the estate.  The estate includes all property owned or rights to property owned by the debtor at the time of filing the bankruptcy petition.  This means that a debtor can keep a house or car that may be in jeopardy of forfeiture, even if they are behind on payments.  Unlike a Chapter 7 liquidation bankruptcy, the trustee does not sell the debtor's property that is not subject to a lien or protected by an exemption. 

Debtor May Cure Past Due Mortgage Payments


Chapter 13 provides a debtor with an opportunity to keep their house.  A debtor may cure missed payments or loan defaults depending on the situation.  For example, if a home has gone through the foreclosure process, either because of missed mortgage payments or property taxes, it may be too late to file for bankruptcy to save the house.  If the foreclosure process is ongoing, filing Chapter 13 gives rise to the automatic stay which stops the creditor from taking the house through foreclosure.  If the debtor can create a repayment plan and have the bankruptcy court confirm that plan, the debtor can keep the home and cure the missed payments.


Debtor May Prevent Auto Repossession

For debtors who are behind on car payments, Chapter 13 provides an opportunity to prevent repossession by the auto lender.  In Michigan, auto lenders can use self-help to repossess a car subject to a security lien by taking the car if they do not disturb the peace when doing so.  For debtors who need their car to get to work, losing a car usually means losing a job.  Chapter 13 allows a debtor to keep their car as long as they make payments according to the plan.

Debtor May Be Able to Discharge Some Unsecured Debts

In some cases, debtors are able to discharge all or a large percentage of non-priority, unsecured debts upon completion of the plan.  Unsecured, non-priority debtors must receive as much as they would if the debtor had filed a Chapter 7 liquidation bankruptcy.  If these creditors would receive nothing in a Chapter 7 bankruptcy, then then the debtor is not required to repay them in Chapter 13 unless there is an excess of disposable income.  A debtor in a Chapter 13 must agree to repay creditors with priority debts as determined under the Bankruptcy Code.  Common priority debts include domestic support payments, administrative expenses related to the bankruptcy, and unpaid taxes.  


Some debtors who are contemplating divorce may attempt to discharge consumer debt by increasing domestic support payments as part of a plan to prioritize the domestic support payments.  In these instances, the domestic support payments attract the disposable income and reduce payments to other unsecured creditors.  If a divorce and bankruptcy are both imminent, the parties to a divorce should address the bankruptcy concerns as part of a divorce settlement, along with tax obligations to avoid an unenforceable judgment in the future.

What are the disadvantages to filing a Chapter 13 bankruptcy?


Some of the advantages of Chapter 13 can be viewed by some debtors as disadvantages, especially when compared to a Chapter 7 liquidation.  For example, while a Chapter 13 provides the debtor with the opportunity to draft the repayment plan, the debtor must live with that plan for 3 to 5 years.  The amount of disposable income under the plan is paid to the trustee to pay creditors according to the plan.  If a plan is not completed, the case may be dismissed and the debts subject to the petition are not discharged.  


Unlike a Chapter 7 bankruptcy, a Chapter 13 requires full repayment of priority debts as part of the plan. Depending on the types of debts, a debtor may be better or worse off filing a Chapter 13.  A debtor who is able to choose which chapter to file under may have to weigh keeping a house or car against repaying a greater amount to creditors.  In other cases, a debtor may not have priority debts so this is not an issue.  


Chapter 13 is generally more expensive than Chapter 7 because of the additional work required.  A plan must be drafted and reviewed prior to confirmation.  Some plans require revisions before confirmation.  Further, a debtor's circumstances during the plan repayment period may change requiring an attorney to modify the plan.  The benefit of the plan, however, is that attorneys are paid out of the plan repayments, so you can provide no money down to start the Chapter 13 filing.  Additional information on filing Chapter 13 bankruptcy can be found here.


What is the Attorney Fee for Hiring Steiger Tax Law?


Steiger Tax Law can represent you in a Chapter 13 bankruptcy.  The fee is usually a flat fee of $3,000 that is paid on a monthly basis as part of the plan repayment.  No money is required to start the process.  If any additional, unusual litigation is anticipated, this will be discussed at the initial client meeting prior to signing the client engagement letter.  There are no hidden costs or fees.  The client is responsible for paying the court fees.


If you are considering bankruptcy, contact Michigan bankruptcy attorney Andrew Steiger for a free consultation to discuss your options to reduce your debts and protect your assets.  Attorney Steiger will provide you with a free consultation to discuss your current financial situation and possible outcomes of a bankruptcy filing.  Steiger Tax Law is a debt relief agency helping people file bankruptcy under the United States Bankruptcy Code.  For more information, call 248-259-6367 or email Attorney Steiger at