Top Ten Questions (continued)

Question 4.

What is Chapter 13 Bankruptcy?

Bankruptcy under Chapter 13 allows you to create a plan which you will pay into on a regular basis. Initially, a Chapter 13 bankruptcy sounds less attractive than a Chapter 7 filing: Chapter 13 requires you to pay money into a plan, whereas a Chapter 7 just wipes out your dischargeable debts. In some cases a Chapter 7 filing will be more advantageous. However, Chapter 13 has many benefits, including:

  • It can be used to defend against foreclosure, allowing you to satisfy unpaid mortgage bills (or tax bills) over time when your lender is demanding that you pay in one lump sum in order to stop foreclosure.
  • The cost to file Chapter 13 is often lower than Chapter 7, especially under the new bankruptcy law. People often want to file a bankruptcy case quickly; Chapter 13 can often be the way to do this.
  • Chapter 13 bankruptcy stays on your credit report for three fewer years than Chapter 7
    does (seven instead of 10).
  • There is no reaffirmation in Chapter 13. This avoids a sometimes sticky situation related to car loans in Chapter 7. You do not need to potentially undergo a cumbersome reaffirmation process to keep cars for which you have a loan in Chapter 13.


No one ever looses property in a Chapter 13. It is not a “liquidation” chapter, it is a “reorganization” chapter.

Chapter 13 payments are often quite low, allowing a debtor to pay pennies on the dollar to unsecured creditors.

Read more about choosing between Chapter 7 and Chapter 13 Bankruptcy.

Choosing Between Chapter 13 and Chapter 7 Bankruptcy

There are two types of bankruptcy that individuals usually file, Chapter 7 and Chapter 13. One of the main questions people ask is which of the two is best for them.

First, the basics: Chapter 13 is a reorganization, essentially a court-approved partial repayment plan of debts that lasts between three and five years. At the end of that time, any remaining balances are forgiven on most debts (credit cards, etc.)

Chapter 7, on the other hand, is a liquidation. This means that you give up your non-exempt property in exchange for a complete discharge of most debts (no partial repayment plan). Most people don’t have any non-exempt property. So they end up keeping all of their property and receive a debt discharge. Both types of bankruptcy are very popular. The next logical question is why someone would choose one chapter over the other.

First, sometimes you don’t have a choice. In general, if you have the income to pay part of your debts, you must do so in a Chapter 13. This is common sense, and the bankruptcy laws embody some basic common sense. Most, but not all people, who are above-median income are in this category. In Massachusetts, the median income by family size (for cases filed after March 15, 2010):

  • Family of one: $53,315
  • Family of two: $69,204
  • Family of three: $82,297
  • Family of four: $99,293
  • Add $7,500 for each additional family member (for cases filed after April 1, 2010)

Whether you must file Chapter 13 isn’t only based on the median income figures, however — especially if you are only slightly above the income thresholds. It also depends on the means test. Once we have a consultation call with you and learn about your secured debt payments and other factors, we can usually tell you quickly where you fit based on the means test.

If you only qualify for Chapter 13, that’s it and your choice is easy. One key benefit of Chapter 13 is that it stays on your credit report for only seven years from the date of filing, three fewer years than a Chapter 7.

But what if you qualify for Chapter 7, should you file under that chapter? Of course the answer is maybe. As I alluded to, Chapter 7 stays on your credit report for 10 years from the date of filing. It hurts your credit during this period, but it does not destroy it or erase it. Many people get credit scores in the 600s within a year or two of a bankruptcy case.

Moreover, people considering filing for bankruptcy usually already have or shortly will default on their debts, which also causes significant credit report damage (for seven years). However, even if you qualify for Chapter 7 and have come to terms with the credit report issue, you still may not want to file. People who qualify for Chapter 7 file Chapter 13 all the time. Some common reasons are:

  • They want the satisfaction of paying part of their debts.
  • They want the shorter credit reporting period (only seven years for Chapter 13).
  • They want to stop foreclosures, cure mortgage or car defaults, which can only be done in Chapter 13. ‘stop foreclosures’
  • They have tax debt problems which can sometimes only be solved in Chapter 13.

Chapter 7 is usually cheaper than Chapter 13, because in Chapter 13 you make a monthly payment and in Chapter 7 do not. If you qualify, this is a compelling reason to consider filing a Chapter 7 case. The first step for any of this is a free consultation. You can reach Attorney von Timroth at 508-753-2006.

Saving your Home with Chapter 13 Bankruptcy

If you fall behind on your mortgage or tax payments, a Chapter 13 bankruptcy is often the only realistic way to save your home from foreclosure.

Unless you can come up with all the unpaid mortgage payments, late fees, legal fees, and other costs right away. your lender will usually proceed with foreclosure.

Chapter 13 bankruptcy is the only way to make the lender take payment of the back amounts owed over time (3-5 years).

Besides saving your home, Chapter 13 bankruptcy often provides a substantial added benefit of paying off unsecured debt (including credit cards) and reducing the amounts owed on debts like car loans.

If you are facing a foreclosure and want to save your home, you should contact an attorney as soon as possible. My office handles Chapter 13 bankruptcies and saves the homes of regular people going through tough times.

Phone Attorney von Timroth at 508-753-2006 for more information. If you are facing a foreclosure, please mention that you saw this web site so that I can handle your inquiry as soon as possible.

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