This is the type of bankruptcy for an individual (or married couple) with regular income and debt up to a certain amount* as allowed under the bankruptcy laws to propose a payment plan to their creditors, which is filed in addition to the petition and schedules that disclose the debtor’s assets, debts and finances. Only individual persons may file chapter 13, not business entities. Such a plan would provide for the payment of a proposed payment based on available income (under the bankruptcy guidelines) to a trustee for 3 to 5 years, who would pay the individual’s creditors.
A chapter 13 is ideal for those who are in need of restructuring debt secured by property they want to keep (e.g. secured debt such a mortgage arrearage or eligible vehicle loans), payment of debt obligations which they cannot eliminate (e.g. taxes or other nondischargeable debt), and/or have excess income due to which they do not qualify for chapter 7 but still need to reduce the monthly amounts needed to pay all debts to an affordable amount.
There is broad protection of a debtor and debtor’s property and income while proceeding in a bankruptcy case—due to the automatic stay, creditors cannot garnish, foreclose, repossess, or harass debtors. Debtors must also follow the rules of the court-supervised payment plan and make the payments and not incur new debt without permission while it is proceeding.
A debtor in chapter 13 is scheduled for a meeting with the chapter 13 trustee within 30-45 days of the date the case is filed. The first payment under the plan is due 30 days after the case is filed. Upon the completion of payments the debtor would receive a superdischarge for eligible debts which covers more types of debts than that you would receive in a chapter 7.
Analyzing and setting up your case correctly from the start is the key to anticipating and being prepared for potential issues later, as well as maximizing your prospects for successful completion of your plan.
*As of 4/1/22, the debt limit for qualifying for chapter 13 is unsecured debt of up to $465,275 and secured debt of up to $1,395,875. This amount is adjusted every 3 years. On 6/21/22, Congress enacted a law increasing the total debt limit for both unsecured and secured to $2,750,000 until 6/21/24, at which time the original debt limits will be reimposed unless the law is extended.
