Office Location

Coan, Lewendon, Gulliver & Miltenberger, LLC
495 Orange Street
New Haven, CT 06511
New Haven Law Office Map

Our New Haven office, built in 1900 and beautifully preserved

Understanding Chapter 13 bankruptcy

Consumers who are considering bankruptcy should understand how a Chapter 13 plan works and how it differs from other plans.

Many people in Connecticut who encounter serious financial challenges are unsure of how best to address the problem. This is understandable as such a situation can be very stressful. Being hounded by creditors and mounting bills unable to be paid can leave a person wondering what to do. The thought of filing for bankruptcy may seem grim but, in fact, it may be exactly what is needed.

If bankruptcy is a potential option, how can a person know which type to choose? Chapter 7 plans may be more widely used but that does not always mean they are the best choice. Some people find Chapter 13 plans more appropriate and it is important to understand how they work.

What is the basic difference between Chapter 7 and 13?

According to 360 Degrees of Financial Literacy, there are a few key differences between Chapter 7 and Chapter 13 plans. For many people, it is the ability to catch up on mortgage payments over time that leads them to opt for a Chapter 13 proceeding. With a Chapter 7 case, debts are erased, including the personal liability on a mortgage note, but foreclosure may be quickly recommence by the creditor because chapter 7 offers no option of resolving the mortgage arrearages. That means homes may be lost.

Chapter 13 plans do not require any assets to be sold. The U.S. Courts explains that a Chapter 13 bankruptcy is a form of restructured debt consolidation with some options for debt elimination. Forbes adds that Chapter 13 plans allow for second mortgages to be eliminated if home values are low enough. This is not possible with a Chapter 7 case.

How does Chapter 13 work?

In a Chapter 13 plan, all allowable debts are identified and a plan to repay them is established. This repayment plan segments the debts into categories. The first includes all fees for the chapter 13 trustee and possibly some fees for the Debtor’s counsel. Some taxes and secured debts such as mortgage arrearages must be provided for in the plan, and finally unsecured debts. Debtors must pay 100 percent of all items in the first category and taxes but that is not necessarily the case for the other groups.

Repayment takes place over either 36 or 60 months depending upon the debtor’s income. Every month during the plan, the debtor makes a payment to the trustee. The trustee in turn pays creditors according to an established agreement under the Chapter 13 plan. A debtor usually must also provide tax returns every year during the plan term.

A married person can file for Chapter 13 individually. However, when repayment plans are made, the debts and assets for both spouses will be considered.

How can a person file for Chapter 13?

It is always best to consult with an attorney before filing for bankruptcy. There are many detailed requirements and it is best to get professional experience and assistance. Connecticut residents should reach out to a bankruptcy lawyer for help with debt relief and bankruptcy needs.