What Is Chapter 13 Bankruptcy?

Bankrupt businessman begging for help with cardboard signFollowing Chapter 7, Chapter 13 Bankruptcy is the most frequently used bankruptcy chapters of the United States Code. Compared to Chapter 7, it does Chapter 13 does not require any liquidation.

It is typically allowed for a debtor to keep all of his property, whether it is exempted or not, as long as the Chapter 13 Plan is at par with the law.

However, there is a high possibility a Chapter 13 Bankruptcy is more costly than a Chapter when it comes to fees paid to an attorney since the process is a tad more complicated and extensive.


Unlike Chapter 7 which is usually a short and concise process extending only to several months, Chapter 13, on the other hand, can take up to 5 years due to the process and plan period involving regular monthly payouts to the Chapter 13 trustee.

More often than not, plan period extends over a period of three to five years in accordance to the income of the debtor. The period of time for a Chapter 13 plan is generally accounted to whether the income is generally higher or lower the norm income of the locale.

Payment Plan

A Chapter 13 Payment Plan is an effort to restructure the individual’s debt and provide laid out schedule of when the debtor will pay the creditors over a certain period of time. The income of the individual filing for Chapter 13 Bankruptcy will go through a series of tests to determine any disposable income the debtor possesses. The disposable income of the debtor will be used to set up the monthly payment plan.

However, the monthly payment plan might not include all creditors. Most of the time, credit card companies and private insurance companies are not prioritized in the Chapter 13 Payment Plan. Nonetheless, a plan must at all times include priority payments for instance domestic obligations, tax debt, and child support.

Plan Requirements

The approval of the Chapter 13 plan rests on several checks, and examinations to know whether the plan is proposed under the best intentions. The bankruptcy court will determine if the debtor has not misrepresented his assets or carry out fraud with the plan. The approval of the payment plan is also predetermined by how it is in the “best interest of the creditors”.

This test determines the means of the individual to pay off their credit. Although it was mentioned previously that unsecured creditors will not be prioritized, they must at least pay them at some point in time on the Chapter 13 Payment plan.

What is a Chapter 13 Trustee?

A Chapter 13 Trustee is fairly similar to a Chapter 7 trustee. A trustee has the primary role of the debtor’s contact, and he may also review and challenge the payment plan in court lest the Chapter 13 payment plan is inappropriate.

Once the Chapter 13 Payment Plan has been approved by the bankruptcy court, the trustee will act as the liaison between the debtor and creditors and makes sure the payments are all made and received. The debtor will give the payments to the trustee according to the monthly payment plan and manages them.


Once the Chapter 13 Payment Plan takes effect, the debtor must not incur any significant debt such as car loans without the approval of the bankruptcy court. Insurance must also be maintained for any collateral such as car collateral.


So long as the debtor has kept to the payment plan agreed upon, the debtor may continue to be protected until eventual discharge. Similar to the Chapter 7 bankruptcy, the debtor will be discharged at the end of the payment plan.

Chapter 13 bankruptcy can be complicated and confusing without professional help, we encourage you to contact a Minnesota Chapter 13 bankruptcy lawyer like Bolinske Law before further consideration.


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