You Keep All of Your Property in Chapter 13 Bankruptcy, Provided You Follow the Rules

You Keep All of Your Property in Chapter 13 Bankruptcy, Provided You Follow the Rules

Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC


Chapter 13 bankruptcy, commonly called “reorganization bankruptcy” or a “wage-earner’s plan,” allows people with a job and regular income to keep all of their property. In exchange for this, you and your lawyer must design a plan you can follow to repay part or all of your debts.

But if you have nonexempt assets – such as credit card debt, medical bills, and other unsecured accounts – a Chapter 13 plan may require that you pay back more of them than in other forms of bankruptcy.

At the same time, you must stay current on your secured debts, such as your home mortgage and car payments, if you want to keep those assets.

The bankruptcy trustee, the court-appointed person who oversees your bankruptcy, must agree to your plan. Then he will not sell off your nonexempt property as he would in Chapter 7 bankruptcy. Instead, he lets you keep all of your property and propose a repayment plan that you will follow to pay off your debts.

In Chapter 13, you must pay off all of your secured debts. These include paying all of your mortgage payments, including those that are past due, and all priority debts, such as certain types of taxes. The amount you pay to unsecured creditors, such as credit card companies, depends on how much money you earn, your expenses, and your nonexempt assets.

If you own assets that are not exempt, then you must pay those unsecured creditors an amount of money that at least equals the value of those assets. In this way, you keep those nonexempt assets. But you are required to pay more money to those creditors in your repayment plan.

If you have missed payments on your secured debts, such as your house payment and car payment, a Chapter 13 plan lets you get caught up. The automatic stay granted by the bankruptcy court forbids lenders from foreclosing on or repossessing your property. This gives you the opportunity to bring your payments current.

In a Chapter 13 bankruptcy, if you want to keep your property, then you must keep paying on your secured debts. This includes both your past due as well as your ongoing payments. And if you fail, then the lender can go to the bankruptcy court and ask the judge to lift the automatic stay because you have not kept your bargain. Then the judge allows the lender to foreclose on or repossess those assets.

In some cases, the court will allow you to make your car payments through your Chapter 13 plan. At other times, your car loan is outside your Chapter 13 plan. In that case, if you fall behind on your payments, then the lender can repossess your car after getting approval from the bankruptcy court. This holds true for all loans that are secured by personal property.

If you have any questions about filing for bankruptcy in Illinois, please give me a call. I would be happy to give you further information about how bankruptcy can erase credit card debt, including what kinds of credit card debt cannot be erased in bankruptcy. My Chicago law practice specializes in helping individuals and businesses with serious financial problems. For help with bankruptcy, foreclosure, loan modifications, credit card debt, liens, back taxes, or any other money problems, call 312-969-0730 or email today.