Frequently asked questions

• What is the difference between Chapter 13 and Chapter 7?
  The most notable difference is that in a Chapter 13 you submit a payment plan to the court under which all or part of your debt is paid back over 3 to 5 years. After your payment plan is completed, you receive a discharge. This is in contrast to a Chapter 7, which does not require you to make any payments to creditors.
• Why would anyone opt for a Chapter 13 if it requires them to make payments?
  Chapter 7 is generally only available if your income is below the median for your family size or if you pass the means test. For certain higher-income debtors, Chapter 13 may be the only option available. Chapter 13 also allows you to protect assets that cannot be exempted under Chapter 7. For instance, an unmarried debtor who has home equity in excess of the $25,150 homestead exemption may opt to make payments under a Chapter 13 plan rather than risk losing the property in a Chapter 7. Additionally, there are some debts that you can discharge in a Chapter 13 but not in a Chapter 7.
• How is my payment plan calculated?
  First, you are required to pay back all debts the law designates as Priority. This generally includes things like back taxes and child support payments. Second, you must keep current with all secured debt payments on property you plan to keep. This basically means that you will have to make all of your mortgage and car payments on time, and make up for any back payments you owe at the time of filing. Finally, you must pay your unsecured creditors an amount equal to what they would have gotten under Chapter 7, in other words, the value of property that you are unable to exempt. These amounts added together are the minimum amount you have to pay back. Next, your income and expenses are taken into consideration to determine your disposable income. You will then pay all of your disposable income into the plan for its term, provided that this amount is enough to pay back the minimum amount. Any debt remaining after the payment plan is complete is discharged.  
• What happens if my income increases while I'm in the middle of my plan?
  The court may increase the amount of you monthly payment. If your pay increases, notify your lawyer. The court is required to be notified of all major income changes while you are still making plan payments, but this does not mean all income changes. The court is less concerned about routing pay increases and cost-of-living adjustments than it is about the kind of income boost resulting from a promotion or a new job that pays significantly more. Allow your lawyer to determine whether your pay increase is significant enough to involve the court. 
• What happens if I miss payments?
  If you miss a few payments due to an emergency, the court may allow you to make them up, and may grant you additional time to do so. If the problem goes beyond that, it depends on when the missed payments occur. Chapter 13 debtors must start making payments before the plan is confirmed by the court, and this process may take several months. If you miss payments before the court has confirmed your plan, you jeopardize the chances of the court doing so. If your plan has been confirmed, creditors may obtain relief from the automatic stay and resume collection activities, including foreclosure and repossession. Ultimately, failure to make payments may result in a dismissal of your case. This means that your case will end without any debt being discharged.
• What options do I have if my income decreases while I'm in the middle of my plan, or if I'm otherwise unable to make payments?
  First, the court may be willing to modify your plan to reflect your change in circumstances. Keep in mind, however, that your payment still must be enough to cover the minimum amount you have to pay back. If modification is not an option, you may be able to convert your bankruptcy to a Chapter 7. You will still have to meet the qualifications for Chapter 7, and you may lose nonexempt property. Finally, there is an option for hardship discharge, but this is subject to the same limitations as Chapter 7 and really isn't much different.