CHAPTER 13

Chapter 13 is a proceeding under which a debtor proposes to his or her creditors and the court, a plan that enables the debtor to repay as much debt as is feasible given the debtor's financial circumstances. To be confirmed by the court, a plan must provide that the debtor's future income be subject to court administration. After determining a reasonable budget, the debtor's remaining income is paid (generally monthly) by the debtor's employer to the trustee who, after taking a commission, pays the creditors according to the plan provisions. A plan generally lasts three years, but may last up to five years if the court approves the longer period, or if a debtor is required to propose a five-year plan due to their income level. At the end of the plan, the debtor is entitled to receive a discharge of any remaining debt.

Who May File for Chapter 13 Bankruptcy?

Chapter 13 is limited to individuals and unincorporated businesses that have a regular source of income, and whose secured debts are less than $1,010,650 with unsecured debts of less than $336,900. The term "regular source of income" has been interpreted to mean income that is sufficiently definite and certain to enable you, the debtor, to assign it to the trustee on a regular basis for payment by the trustee to your creditors.

What Are Some of the Advantages of Chapter 13?

Bars post-filing creditor actions against co-debtors if the creditor will be paid in full under the plan;
Debtor retains all desired property, provided creditors obtain at least as much under the plan as they would under Chapter 7;
Debtor may have the ability to "write-down" secured non-homestead debts to the value of the collateral;
Debtor may be able to modify interest rates on some loans and extend the payment term on non-homestead debts to make them more affordable;
Debtor may cure loan defaults by making installment payments, and reinstate accelerated mortgage and other notes;
The Chapter 13 discharge is broader than under Chapter 7, so that more types of debts are dischargeable;
Debtor may be able to force ("cram-down") affordable payments on secured and tax creditors that cannot be done under Chapter 7; and
Interest stops on most tax obligations paid under the Chapter 13 plan.

What Are Some of the Disadvantages of Chapter 13?

Debtor's future income is subject to administration by the trustee for up to three and possibly as long as five years;
Under the plan, the debtor must establish and live under a firm, but potentially adjustable budget during the repayment period;
The trustee is entitled to a commission on payments paid to creditors which reduces the value of what is paid to creditors; and
Still appears as a bankruptcy on credit reports.