A Chapter 13 Bankruptcy may be a better option for you if your income compared to your debts is too high, if you have certain assets that you would not be able to keep in a Chapter 7 Bankruptcy, or if you have more of a certain type of debt than another.
If you do not qualify for a Chapter 7, your monthly disposable income can be paid to the Trustee in a Chapter 13. At the end of either a three or five-year plan, depending on your income, you receive a discharge for all unpaid debt. You still have the option to reject contracts you have entered, surrender property that is worth less than what is owed, and receive a discharge for unsecured debt upon completion of the plan.
Another benefit to a Chapter 13 is that you can catch up on payments for certain debts during the course of the Chapter 13 Plan. In a Chapter 7, certain debts, such as domestic support obligations (alimony or child support) and back taxes, are not dischargeable and the balance will remain even after a discharge in Chapter 7. Chapter 13 allows you to make payments on domestic support arrearages to catch up and pay back taxes over the course of the plan. Additionally, if you have been ordered by a Court in a divorce proceeding to sell or refinance property, your ex spouse will not be able to request Court intervention during the course of the plan. For more information, see our Law Topic on the issue of the automatic stay with regards to contempt actions.
Lastly, if you want to retain your assets, Chapter 13 provides greater flexibility. In a Chapter 7, you are allowed to keep a certain amount of property. The rest of your assets are sold and the proceeds are used to pay creditors. In a Chapter 13, creditors are paid through monthly plan payments, and your assets do not have to be liquidated. If you have a large amount of equity in your home, or if you have assets that are worth more than the exclusion amounts that you want to keep, a Chapter 13 may be an option.