Chapter 13 Tips & Traps

• Chapter 13 bankruptcy can be a lifeline for people who are drowning in debt. When you file Chapter 13, you devote three to five years of your disposable income to pay back some of your debts, while other bills will be discharged or wiped out. Knowledge of the Chapter 13 rules can enable you to get the maximum benefit out of bankruptcy.

Limitations

• You can't discharge all your debts in Chapter 13, the U.S. Courts website states. Loans secured by a claim on property, such as a mortgage or car loan, must be paid off if you want to keep the property. Anything the court classifies as a priority debt--alimony, child support, student loan payments and recent tax debts--also must be paid.

Cram Down

• A second mortgage is secured by a lien on your home and normally can't be discharged. If your home is worth less than your first mortgage, however, the Nolo legal website states, you can ask the court for a cram down, declaring that as the second mortgage lender has nothing to secure his claim, it's now an unsecured debt that you can wipe out.

Keeping Your Home

• You can't discharge your first mortgage but, the U.S. Courts state, you can work out a plan to make up any delinquent payments as part of your overall three- or five-year plan. You'll have to stay current with your payments, but because you're not paying your unsecured debts in full, you should have more money to put toward the mortgage.

Missing Payments

• If you don't keep up the payment plan, Nolo states, the court could dismiss the bankruptcy, leaving you at the mercy of your creditors. It also could convert the case into a Chapter 7 bankruptcy, which might require you to sell off your assets and possessions to satisfy your debts.

Plan Modifications

• If you can't meet your payments for reasons outside your control--you took a big pay cut or you're disabled, for instance--file with the court to modify the plan and reduce the payments. In some cases, the judge may arrange an immediate hardship discharge, ruling that you've paid enough and your remaining unsecured debts are wiped out.