Chapter 13 bankruptcy: Questions and answers

* Purpose:

To reduce debts and give you more time to pay them off.

* What debts aren't affected?

Certain debts can't be reduced, including criminal fines, civil judgments in drunk-driving cases and back-owed child support and alimony.

* Will my student loans be erased?

They'll still be owed in full, except in rare cases in which undue hardship can be proved.

* Will past-due income taxes be eliminated?

You probably won't be able to get out of paying what you owe the IRS, in full, for recent tax years. Sometimes you can get a break on older tax debts.

* Who can file?

Too much debt can make you ineligible. If you have more than $1,010,650 in debts secured by collateral (including most home or car loans), you can't file for Chapter 13. And you can't have more than $336,900 in unsecured debts not backed by collateral, such as most credit card charges.

* Will I need a lawyer?

Probably, unless you're willing to devote a lot of time to learning about regulations and procedures. A Chapter 13 filing is more complex than Chapter 7, and if you go the do-it-yourself route, there's a good chance you'll have to redo your plan several times before the trustee is satisfied. The attorney fee for the work is likely to be $3,000 or more, but part of it could be paid over time.

* What's the filing fee?

It's $274, but it can be waived.

* What happens to my possessions?

If you keep up with your payment plan, you're not likely to lose anything. Miss a payment, and the bankruptcy can be canceled. Unless you file for Chapter 13 primarily to stop a foreclosure, make reasonably sure you can keep up with payments for years to come before making the commitment.

* Can I keep my house?

This filing stops foreclosure proceedings -- as long as the foreclosure sale has not occurred -- and allows you to make up missed payments over time. But you'll have to keep current with payments at your mortgage's regular interest rate unless you can arrange a loan modification with the lender.

A bill pending in Congress would allow a judge overseeing a Chapter 13 bankruptcy to reduce the principal amount owed on a home.

* Can I keep my car?

Yes, and if it's at least 2 1/2 years old and worth less than what you owe on your auto loan, you might be able to get the loan balance reduced.

* Are some possessions protected from auction?

As long as you stay current on the payment plan, you get to keep your stuff.

* Will I meet with the trustee?

After filing a proposed payment plan, you meet with the trustee to go over it. Creditors can attend and ask for changes. The plan eventually has to be approved by a judge.

* How long does the bankruptcy process take?

It ends when you've completed your payment plan -- usually in three to five years.

* Can I file for this type of bankruptcy again?

Yes, but no sooner than two years after completing the payment plan.