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Chapter 13 Summary
LAWDOG is intended to assist in the understanding of basic concepts. See Disclaimer. Always obtain legal advice from legal professionals.
Individuals With Regular Income
Chapter 13 of the Bankruptcy Code, sometimes referred to as the "wage earner" plan, is available to individuals with regular income. Chapter 13 may permit individual debtors to propose a plan of repayment where creditors are paid all, or a portion, of certain debts in installments. The plan may not provide for payments over a period longer than three years, unless the court, for cause, approves a longer period, but not over five years. See Chapter 13 Plan from the previous menu or click here. Link does not return to this page.
Chapter 13 may allow a debtor to retain assets and obtain a broader discharge. The plan must provide for the submission of all or such portion of future earnings or other future income of the debtor to the supervision and control of the trustee as is necessary for the execution of the plan. Other requirements must be met. See Section 1322, reproduced here for illustration purposes only.
Section 109 (e) limits who may file a Chapter 13 as follows:
(e) Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000, or an individual with regular income and such individual's spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $250,000 and noncontingent, liquidated, secured debts of less than $750,000 may be a debtor under chapter 13 of this title.
A corporation may not be a Chapter 13 debtor. However, relief may be available to a self-employed individual, or an individual operating a business, provided that the requirements under Section 109 are met. See Section 109, reproduced here for illustration purposes only. Section 1304 provides that a debtor who is self-employed or engaged in business may operate the business of the debtor.
Unless the court orders otherwise, the debtor, acting as the trustee, may enter into transactions, including the sale or lease of property of the estate, in the ordinary course of business, without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing ( but not "cash collateral" without consent or court order). The debtor, acting as the trustee, may also be permitted to obtain unsecured credit and incur unsecured debt in the ordinary course of business. See Section 1304, reproduced here for illustration purposes only.
Automatic Stay
The filing of a petition under Chapter 13 "automatically stays" most collection actions against a debtor or a debtor's property. For so long as the stay is in effect, creditors generally cannot even make a telephone demand for payment to a debtor. The automatic stay should be respected and taken seriously. Section 362 (h) provides that an individual injured by any willful violation of a stay shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages. Actual cases should be discussed with your actual legal advisor or legal department. See Automatic Stay & Relief from previous menu or click here. Link does not return to this page.
Co-Debtor Stay
Section 1301 of the Bankruptcy Code provides that in a bankruptcy for individuals filed under Chapter 13, a creditor may NOT pursue against a co-debtor or a personal guarantor, not in bankruptcy, if the debt is a "consumer debt". Under Section 101 (8) ''consumer debt'' means debt incurred by an individual primarily for a personal, family, or household purposes. See Co-Debtor & Personal Guarantee from previous menu or click here. Link does not return to this page.
Except as provided in a confirmed plan or order confirming a plan, the debtor shall remain in possession of all property of the estate. Property of the estate includes, in addition to the property specified in Section 541, earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first. See Section 1306, reproduced here for illustration purposes only.
Chapter 13 Plan
The debtor must file a Chapter 13 plan with the petition, or within 15 days thereafter. Such time may not be further extended except by the court for cause. If a debtor first filed a Chapter 7 bankruptcy but later converted to a Chapter 13, a plan must be filed within 15 days from the date of conversion.
At a required confirmation hearing, the Bankruptcy Court may "Confirm" the plan if the plan meets statutory requirements, is proposed in good faith, all fees and charges have been paid, and the debtor has a reasonable probability of success in fulfilling the payments under the plan. The value of property, as of the effective date of the plan, to be distributed to each allowed unsecured creditor must be not less than the amount which would have been paid on such unsecured claim under a Chapter 7. Other rules apply. See Confirmation of Plan from previous menu or click here. Link does not return to this page.
Effect of Confirmation
The confirmation of a Chapter 13 plan generally binds the debtor and all creditors, and vests all property in the debtor. Upon completion of the plan, a debtor may be granted a discharge. If the debtor does not complete payments under the plan, the Chapter 13 bankruptcy may be dismissed or converted to a Chapter 7 liquidation. See Conversion, Discharge, & Dismissal from previous menu or click here. Link does not return to this page.
