Interviewer: Can you please provide us with a quick summary of Chapter 13 bankruptcy?
Court Koehler: Chapter 13 bankruptcy is a kind of bankruptcy that’s a little bit different than your normal Chapter 7 or what they call straight bankruptcy. With the Chapter 7 bankruptcy or a straight bankruptcy, it’s a liquidation of your assets, so you sell everything and it’s distributed to your creditors and then you walk away with a fresh start.
A Chapter 13 Bankruptcy Is a Payment Plan for Your Creditors and Allows You to Retain Assets
That can be helpful sometimes, but in some cases you have assets that you want to hold on to, typically a house. If you have a house and you don’t want to lose your mortgage or your house but you want to reorganize your finances, then you can enter a Chapter 13. It’s bankruptcy that has a payment plan attached to it.
The way it is different from a Chapter 7 is that you don’t liquidate any of your assets. You keep everything but you enter a plan to repay a portion of your unsecured debts and your secured debts. At the end of the payment plan period, you get a discharge of the remaining debt that you owe on your unsecured debts.
By then you’re caught back up on your secured debts like your mortgage and your car payments, then you get a fresh start at that point and you move forward from there.