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What is Chapter 13 and how is it different from Chapter 7?

On Behalf of | May 10, 2023 | Chapter 13 Bankruptcy

If you are struggling with debt and looking for a way to get a fresh start, you may have considered filing for bankruptcy. But which type of bankruptcy is right for you?

In this blog post, we will explain what Chapter 13 bankruptcy is, how it differs from Chapter 7, and the benefits it offers.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy allows people to create a plan to repay all or part of their debts over a period of 3 to 5 years. The length of the repayment plan depends on the individual’s income and debt. The plan must be approved by the bankruptcy court and supervised by a trustee.

Unlike Chapter 7 bankruptcy, which liquidates your non-exempt assets to pay off your creditors, Chapter 13 bankruptcy lets you keep your property as long as you make the agreed-upon payments. However, you must also stay current on your ongoing obligations, such as your mortgage, car loan, taxes and child support.

Who can file?

To qualify for Chapter 13 bankruptcy, you must meet certain eligibility requirements. These include having a regular source of income that is sufficient to cover your living expenses and your monthly plan payments.

You cannot have unsecured debts (credit cards, medical bills, personal loans, etc.) that exceed $465,000 (as of 2022).

You also cannot have secured debts (mortgages, car loans, tax liens, etc.) that exceed $1,400,000 (as of 2022). Finally, you cannot have filed for Chapter 7 bankruptcy in the past 4 years or Chapter 13 bankruptcy in the past 2 years, and you must complete a credit counseling course within 180 days before filing.

What are the benefits?

Chapter 13 bankruptcy can offer several advantages to Florida residents who are facing financial difficulties. Some of these benefits are that you can keep your home and avoid foreclosure by curing any arrears through your plan. You can also modify or strip off certain junior mortgages or liens on your property if they are underwater (meaning that they exceed the value of your property).

It can help you keep your car and other secured assets by paying their current value or the amount owed on them through your plan. You can also lower your interest rate or extend the repayment term on some secured debts.

Plus, you can protect your co-signers from pursuit by your creditors for joint debts that are paid through your plan.

You can stop creditor and collection agency harassment. And, you can improve your credit score over time by making consistent payments and reducing your debt-to-income ratio.


Kingcade & Garcia | A Miami Law Firm