A Chapter 13 Bankruptcy is different than a Chapter 7 Bankruptcy in that rather than selling nonexempt assets to pay creditors, payments are made through a Chapter 13 Bankruptcy Plan. These Chapter 13 Bankruptcy Plan payments are typically withheld from your paycheck, and the Bankruptcy Trustee makes payments to your creditors for you. Depending on your income, these plans can last between three to five years. After successfully completing your plan, creditors will have received partial payment of what they are owed, and the remaining debt is discharged.
While a Chapter 7 Bankruptcy is typically more desirable, a Chapter 13 does provide certain benefits. First, not everyone qualifies for a Chapter 7 Bankruptcy. In order to file in Chapter 13, you only need a steady income. While there is a limit on how much debt an individual may have, most individuals fall well below the debt limit. A Chapter 13 Bankruptcy is an option for those who do not qualify for a Chapter 7. Additionally, unlike Chapter 7 Bankruptcy, where Bankruptcy attorney fees are required to be paid up front, Chapter 13 Bankruptcy attorney fees may be paid out during the plan, potentially costing you less money up front. You also have greater flexibility in deciding what assets to retain, as your assets are not subject to liquidation as in a Chapter 7.