In Chapter 13 bankruptcy, you propose a payment plan to your creditors, and it usually lasts three to five years. It offers to pay all or part of your debt with any future income you earn. You can use Chapter 13 to make up for late car payments, pay back taxes, keep a bank from foreclosing on your home, keep non-exempt property you think is valuable, keep interest from being earned on your tax debt, and much more. When you meet the terms of your agreement to pay off your debts, all of your remaining dischargeable debts will be released at the end of the payment period. The monetary amount allocated to creditors under a Chapter 13 bankruptcy must be equal to the amount they would have received if a Chapter 7 bankruptcy had been filed. To file Chapter 13 bankruptcy, you must have a “regular source of income” and disposable income to apply to your payments.

Typically, a chapter 13 bankruptcy is used when you want to keep secured assets, such as a car or home, where you have more equity in the secured assets that you can protect using your bankruptcy exemptions. It is a reorganization of debts you owe to your creditors that are not non-dischargeable debts.

A Chapter 13 bankruptcy allows you to make up your missed payments over time and reinstate your original payment arrangement. It may also be a better option when you have valuable non-exempt property that you want to keep. To keep non-exempt property, you must pay the creditor the value of the property.

An exemption limit would apply to any equity you have in the property. Equity is simply a difference between the value of the property and what you owe on it. For example, if you have a truck valued at $10,000 with a loan of $8,500, the truck only contains $1,500 of equity. When you have property that is held by a loan, the equity you own in that property is covered by your exemptions. That is if you are up to date on your payments. Also, if you choose to continue making normal loan payments, you can keep the property throughout the term of the bankruptcy and after it is complete. If the estate is not covered by your exemptions, your creditor may choose to sell that asset and then distribute the money from the sale. In this case, you would be entitled to the value of your exemption on the asset sold as a cash payment. Current bankruptcy laws allow a married couple to file a full set of exemptions for each claim, meaning more property can be protected.

Non-dischargeable debts that you cannot erase in bankruptcy include personal injury/death debts caused by DWI/DUI, past due child support, alimony, family support-related debts, student loans, income tax debts in the last three years, as well as any other tax debts, traffic ticket fines, criminal restitution, and any debts you forget to list in your bankruptcy documents, unless you inform the creditor of your bankruptcy case. Aside from those non-dischargeable debts, everything else included in your bankruptcy case will be discharged at the end of the agreed-upon bankruptcy period.