Chapter 13 Bankruptcy Information

Chapter 13 bankruptcy is designed to allow you to re-pay an affordable amount back to your unsecured creditors and to modify some of your secured loans.

Chapter 13 will protect your home from foreclosure, car from repossession, wages from garnishment. Filing stops all collection and, depending on your assets and income level, it usually allows you to pay only a percentage of what is owed to your unsecured creditors (i.e. credit cards). Often, consumers who otherwise qualify for Chapter 7, decide to file Chapter 13 instead, because it allows them to reduce the amount of their monthly car payments and remove unsecured 2nd or 3rd mortgages from a home.

In a Chapter 13 bankruptcy, you will repay (usually only a small portion) of your debts through monthly payments which are spread out over a 3-5 year period. Your repayment amount is based on your assets, your income, and your expenses.

Frequently Asked Questions About Chapter 13 Bankruptcy

I have an overwhelming amount of debt. I know my income is too high to qualify for Chapter 7 bankruptcy. Is my income too high to file for Chapter 13 bankruptcy in Texas?

No. There is not an upper income limit on filing Chapter 13. In some Chapter 13 cases, if the income is high enough in relation to the amount of debt, the filer may be required to repay the entire amount which is owed, rather than just a portion of what is owed. However, a Chapter 13 bankruptcy may still allow you to spread your payments out, without interest, over 3-5 years. In addition, you will not have to deal directly with your creditors or collection agencies, but instead will make scheduled monthly payments to your Chapter 13 trustee who will then pay your creditors for you.

Is Chapter 13 the type of bankruptcy that is also referred to as “reorganization bankruptcy?”

Yes. Chapter 13 is often called “reorganization bankruptcy” or “wage earner bankruptcy.”

If I file a Chapter 13 will I have to repay all my debts? I can't afford to do that.

Chapter 13 bankruptcy was designed to protect your assets and allow you to make affordable payments to your creditors. Most people are surprised when they find out just how affordable a Chapter 13 plan is. If you are currently struggling to make minimum monthly payments to credit card companies you will likely discover that a Chapter 13 payment is much less money each month than making minimum monthly payments. Also, in a chapter 13, you are not charged interest.

How does a Chapter 13 work?

In a Chapter 13 plan, your necessary monthly living expenses are calculated. This includes funds for housing, transportation, food, and other normal living expenses. After your allowable necessary living expenses are subtracted from your monthly income, you have your monthly “disposable income.” Your chapter 13 payments come out of your monthly disposable income—even if this is much less than what you actually owe your creditors, this is all you are required to pay. In a Chapter 13, your creditors can not harass you or ask you for more money. At the end of your plan (a Chapter 13 can last 3-5 years) if you have made all of your payments, you no longer owe your creditors any money —- even if you have only repaid a small portion of what you owed.