Under a chapter 13 bankruptcy, a debtor proposes a 3-5 year repayment plan to the creditors offering to pay off all or part of the debts from the debtor’s future income. You can use Chapter 13 to prevent a house foreclosure; make up missed car or mortgage payments; pay back taxes; stop interest from accruing on your tax debt (local, Texas state, or federal); keep valuable non-exempt property (see Texas exemptions); and more. If you can stick to the terms of your repayment agreement, all your remaining dischargeable debt will be released at the end of the plan (typically three to five years). The amount to be repaid is determined by several factors including the debtor’s disposable income as is usually determined as part of the Texas Means Test. In addition, the total amount paid to creditors under the Chapter 13 plan must also be at least as much as creditors would have received if the debtor filed a Chapter 7 bankruptcy. To file Chapter 13 bankruptcy you must have a “regular source of income” and have some disposable income to apply towards your Chapter 13 payment plan.
Chapter 13 bankruptcy is generally used by debtors who want to keep secured assets, such as a home or car, when they have more equity in the secured assets than they can protect with their Texas bankruptcy exemptions. Chapter 13 bankruptcy is a reorganization whereas Chapter 7 bankruptcy is a liquidation.
A chapter 13 bankruptcy allows them to make up their overdue payments over time and to reinstate the original agreement. Where a debtor has valuable nonexempt property and wants to keep it, a chapter 13 may be a better option. However, for the vast majority of individuals who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice.