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How To Decide Whether To File Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a process that's commonly used by individuals to restructure their debts. This means they typically hold onto their assets, but their creditors will likely take a reduced amount of what's owed. For example, you might ask the court to impose a 20% cut on your creditors. The net effect would be that you'd enter into a payment plan that would honor 80% of the original debts, and then the judge would discharge the remaining 20% once the plan was completed.

This approach may not work for all debtors. If you're wondering how to decide whether to go this route, here are four things a Chapter 13 bankruptcy lawyer will tell you to think about.

Secured Debts

In America's financial system, secured debts are ones that accompany any real property. Someone's mortgage is a secured debt, for example, because there is a house attached to the debt and the creditor can repossess the house. Chapter 13 is the process most commonly used to hold onto any property that's secured. If you go with Chapter 7, a process that sells your assets to satisfy creditors, secured properties go through repossession.

That isn't to say you can restructure unsecured debts through Chapter 13. You can restructure personal loans, credit card balances, and many types of bills. It simply means if you want to hold onto a property that secures a loan, you can only do that by restructuring. For individuals, that typically means filing for a Chapter 13 bankruptcy.

Business Debts

With the exception of sole proprietorships, many business bankruptcies go through Chapter 11. It's a process that allows the discharge of larger amounts of debt, but it also gives creditors a much bigger say in what the repayment plan will look like. It is possible for an individual to file Chapter 11, but it is also very rare.

Earning Capacity

Presuming the court grants your petition to restructure your debts, you will need an income stream that allows you to make payments. When a Chapter 13 bankruptcy lawyer files a case, they will include documentation that shows what the petitioner's income is and how much they can afford to pay.

Be prepared to provide the last few years of your tax returns. It's also wise to include several months' worth of your most recent pay stubs, especially if your income has gone up or down significantly since you last paid taxes.


A typical Chapter 13 bankruptcy repayment schedule lasts between three and five years. You must make all payments on time, and you must make them in full. Contact a Chapter 13 bankruptcy lawyer for more information.