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CHAPTER 13 - Adjustment of Debts of an Individual with Regular Income
Chapter 13 is designed for an individual debtor who has a regular source of income and who has limited unsecured debt and approximately $1 million in total secured (mortgage-type) debts. Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a "plan" to repay creditors somewhere between 0-100% of their debts over time – usually over three to five years. Chapter 13 may be the only alternative for consumer debtors who do not qualify for chapter 7 relief under the means test. At a confirmation hearing, the court either approves or disapproves the debtor's repayment plan, depending on whether it meets the Bankruptcy Code's requirements for confirmation. Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based sometimes upon yet another math-based income and expense test, and sometimes upon the debtor's anticipated income over the life of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.
