Chapter 13 Bankruptcy


Potential Benefits:

  • Stop collection letters, calls, lawsuits, garnishment, and other debt collection activities.
  • Stop foreclosure proceedings and pay delinquent mortgage payments over time.
  • Drastically lower, or eliminate, payments for many debts by extending payments over time and reducing interest.
  • Keep all property even if it is over exemption limits.
  • Consolidate unsecured debts in one simple payment.
  • Protect third parties, such as co-signors, who are also liable on consumer debts.
  • Relieve the extreme stress that often comes with being overwhelmed by debt and from dealing with debt collectors.
  • Get back on the road to financial stability.

Potential Disadvantages:

  • Lasts for three to five years.
  • Some debts such as taxes, child support, spousal support, and student loans must be paid in full.
  • May have to pay back at least some portion of unsecured debts over the life of the “plan.”


A Chapter 13 bankruptcy is also called a “wage earner’s plan” or a “debtor’s repayment plan.” It allows individuals with steady income to propose a plan to repay all or part of their total debts. The proposed repayment plan designates installments to be paid to creditors over three to five years, without interest, which is often less than the total amount owed. During the entire length of the plan, the law prohibits creditors from any collection efforts (no more annoying, harassing, or offensive letters or calls from debt collectors).

The main reasons that an individual would file a Chapter 13 instead of Chapter 7 are because the individual makes too much income to qualify for a Chapter 7, wants to prevent foreclosure action on his or her home, or owns valuable personal or real property outside the relevant exemption limits for liquidation under Chapter 7.

An individual, even if they are self-employed or operate an unincorporated business, is eligible for Chapter 13 protection as long as the individual’s unsecured debts are less than about $336,900 and secured debts are less than about $1,010,650.


Overview of the Process:

Like Chapter 7, a Chapter 13 case is initiated by filing a petition with the appropriate bankruptcy court. The court itself charges a filing fee that is currently $335. As with a Chapter 7, the rules for Chapter 13 also require a filer to complete two private courses (often called “credit counseling” and “financial management”) – one prior to filing and the other prior to the actual completion of the “plan” term. These courses can be done in person, online, or over the phone, and usually cost between $30 and $50 (the fees may even be waived). Numerous other documents, many called “schedules,” must be filed with the court to establish and prove the filer’s assets and liabilities; the source, amount, and frequency of the filer’s income; a list of all property; and monthly living expenses. It is critical that all of the required information be truthful and as accurate as possible. Evidence verifying income and assets will be necessary, including tax returns, pay stubs, and bank statements. A skillful bankruptcy attorney has a set of very detailed yet simplified tools to get this information from the client in the most practical, efficient, and effective way. At the time the petition is filed, an impartial trustee is appointed to administer the case.

Also similar to a Chapter 7, filing the petition under Chapter 13 triggers an “automatic stay” against most collection actions. However, the automatic stay lasts for the length of the plan commitment period (three to five years). During the stay, creditors may not initiate or continue lawsuits, wage garnishments, collection letters, or even telephone calls demanding payments. The terms of the “plan,” once approved by the court, dictate who and how much will be paid. A proficient bankruptcy lawyer will swiftly take action against any creditor who violates the protection provided under this automatic stay. Unlike Chapter 7, Chapter 13 contains a provision that may also protect co-debtors. Unless the court orders otherwise, a creditor cannot collect a consumer debt from any individual who is liable along with the debtor for that particular debt.

The most important difference between Chapter 7 and Chapter 13, in regard to the process, is that the basis of Chapter 13 is set up like one big payment plan to your creditors, but instead you [Editing1] usually pay only one person, the trustee, who distributes the money to the appropriate creditors in accordance with the plan.

Soon after filing the petition, your lawyer will prepare and file the Chapter 13 “plan.” The plan and the specific amount of the monthly payment to the trustee are based on the income and expenses submitted with the petition and the supporting “schedules” and other documents required by the court. The plan will include, at the least, payment for all of your regular monthly “secured” debts (such as home mortgage and auto loan), plus an amount for lawyers’ fees, any arrearages, the trustee’s fees, and other administration fees.

The plan must ultimately be approved by the court at a “confirmation hearing,” but within 30 days after filing the bankruptcy case, the debtor must begin making payments to the trustee in accordance with the proposed plan. Throughout your case (three to five years), if payments are not remitted to the trustee on time, the trustee will file an affidavit of default and all payments will have to be quickly brought up-to-date. Otherwise, your case could be dismissed for non-payment. If this happens, the filer would be prevented from filing another Chapter 13 case for up to six months. The rules relating to timely payment are strictly enforced by the trustee and the court. Sometimes, certain events besides late or missed payments may hinder the ability of the filer to make payments. For example, a creditor may object to the plan, or a relevant creditor was overlooked. In such instances, the plan may be modified either before or after confirmation by the court.

Between 21 and 50 days after the debtor files the Chapter 13 petition, the filer will have to attend a “meeting of creditors” conducted by the trustee. The filer must attend the meeting and answer questions regarding their financial affairs, property, and the proposed terms of the Chapter 13 plan. This meeting is not attended by any judge or clerk of the bankruptcy court. Although creditors can attend this meeting, it is uncommon. Although, understandably, many people are nervous about attending such a meeting, a compassionate and effective bankruptcy lawyer will not only attend the meeting, but will also help to reassure the client by carefully preparing the client, making sure that the client has the necessary documents required by the trustee, explaining the process thoroughly, explaining the proposed plan, and helping the client navigate through the questions if he or she is unsure how to answer.

The Discharge:

After successful completion of all payments under the Chapter 13 plan, and all other requirements are satisfied, the filer (debtor) is entitled to discharge. In general, Chapter 13 discharge releases the debtor from all debts included in the plan. This means that creditors that were paid in full, or in part, pursuant to the plan cannot seek to collect on any debts that were paid from the plan. Of course, certain debts, such as a mortgage that was not paid in full during the plan, child support obligations, some tax debts, student loans, and other non-dischargeable debts, must continue to be paid after the discharge. Your lawyer will let you know of the obligations that are non-dischargeable and that survive the discharge. In some unique situations, the filer may also receive a “hardship discharge” if certain strict criteria are met.

Once the discharge is granted, it is time for the individual or couple to begin rebuilding credit and continue along the road to financial stability. A skilled bankruptcy attorney will provide information to their client so that they can achieve the overall goal of financial well-being.

If you live in Portland, Gresham, Multnomah County, or in the Portland Metro area, and you think that filing a Chapter 13 bankruptcy in Portland, Oregon may be a good option for you, or you just simply have some questions, please contact me at 503-847-4329 for a  free phone consultation.

Any information on this website is provided as a courtesy, for basic informational purposes only. It is not intended to be a comprehensive or accurate statement of the relevant laws.

Affordable & Compassionate Portland Bankruptcy and Consumer Protection Lawyer