Chapter 13
Chapter 13, entitled Adjustment of Debts of an Individual with Regular Income, is designed for an individual debtor who has a regular source of income and whose unsecured debts are less than $290,525 and secured debts are less than $871,550. Chapter 13 is often preferred over chapter 7 because it allows the debtor to keep a valuable asset, such as a house, and to propose a “plan” to repay creditors over time — usually three to five years.
Filing a petition under chapter 13 “automatically stays’ most actions against the debtor or the debtor’s property. An impartial trustee is then appointed to monitor the case and administer payments under the plan. The court reviews the proposed plan at a confirmation hearing, and once it is determined that the plan meets the Bankruptcy Code’s requirements, the debtor begins making payments to creditors, through the trustee. The debtor is protected from lawsuits, garnishments, and other creditor action while the plan is in effect.
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 granted, but once all of the payments have been made, the discharge is broader than that which is granted to a debtor in a chapter 7 case. As a general rule, the chapter 13 debtor is discharged from all debts provided for by the plan except certain long-term obligations (such as a home mortgage), debts for alimony or child support, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving under the influence, and debts for restitution or a criminal fine listed on the debtor’s criminal record.
