How a Chapter 13 Bankruptcy Zero Percent Plan Can Save Your Home and Car

Instead of filing for Chapter 7 bankruptcy, save your home and car—and wipe out other bills—by filing a Chapter 13 zero percent plan.

By , Attorney · University of the Pacific McGeorge School of Law

If you need to file for Chapter 13 bankruptcy, but you're concerned you can't afford to, you'll want to learn about Chapter 13 bankruptcy zero-percent plans, including:

  • what a Chapter 13 zero-percent plan is
  • how a Chapter 13 zero-percent plan could help you save your home or car, and
  • why it might be a more affordable option than the typical Chapter 13 plan.

Also, if you qualify for Chapter 7 bankruptcy, you'll have the option of paying for three years instead of five.

What Is a Chapter 13 Bankruptcy Zero Percent Plan?

A Chapter 13 zero percent plan is a repayment plan that doesn't pay nonpriority unsecured debts, like credit card bills, personal loans, and medical balances. If your income is low enough to qualify for Chapter 7, your bankruptcy court might offer this option.

Why Is a Zero Percent Plan Better Than a "Regular" Chapter 13 Plan?

Chapter 13 filers usually have high incomes and must pay as much as possible toward unsecured debts. If you qualify for a zero-percent plan, the bankruptcy court won't hold you to the same standards. Instead, you can focus your extra income toward saving your home or car and pay into a three-year plan instead of a five-year plan if that's your choice.

How Will I Know I Qualify for a Chapter 13 Zero-Percent Plan?

Passing the Chapter 7 means test and qualifying to wipe out debt with a Chapter 7 discharge tells the bankruptcy court that you don't have sufficient income to pay unsecured debts. So if you qualify for Chapter 7, it's possible to use a zero percent plan if your court will allow it (not all do). The calculation won't change just because you file a Chapter 13 case.

Why Would Someone Who Qualifies for Chapter 7 File for Chapter 13 Bankruptcy?

Most people prefer to file for Chapter 7 bankruptcy because it quickly wipes out qualifying debt without requiring creditor payments. However, if you're behind on your mortgage or vehicle payment and want to keep the home or car, Chapter 7 bankruptcy won't help you. Instead, you'll need to consider Chapter 13 because only Chapter 13 bankruptcy will let you catch up on missed payments and keep the property.

According to the contract terms, a debtor must pay as agreed. Otherwise, the lender will use its lien to foreclose on the house or repossess the car. In that situation, Chapter 13 bankruptcy is a better bet. It gives a debtor three to five years to catch up on arrearages so the debtor can save the home or keep the car.

What a Debtor Must Pay in a Zero-Percent Plan

A zero-percent plan doesn't mean you'll pay nothing at all. But you won't pay anything to your nonpriority unsecured creditors, such as credit card balances, medical and utility bills, and personal loans. Any remaining debt you can discharge in Chapter 13 will be wiped out at the end of your case.

Your Chapter 13 bankruptcy lawyer can help you determine other amounts you'll need to pay.

Proposing a Zero Percent Plan in Chapter 13 Bankruptcy

In the zero percent plan, most debtors will likely pay the following over three years:

  • monthly mortgage or car payment, and
  • mortgage or car payment arrearages.

However, you can spread out the balance owed over five years if it would be more affordable. As with any Chapter 13 case, you'll need to demonstrate you have sufficient monthly income to make the plan payments. Learn how to calculate Chapter 13 plan payments.

Consult With an Attorney

Preparing a Chapter 13 bankruptcy plan is complicated, and most people need help from a bankruptcy attorney. A local bankruptcy lawyer will be in the best position to review your case and explain your options.

Need More Bankruptcy Help?

Did you know Nolo has been making the law easy for over fifty years? It's true—and we want to make sure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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