A chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a
plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments
to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median,
the plan will be for three years unless the court approves a longer period "for cause." (1) If the debtor's current
monthly income is greater than the applicable state median, the plan generally must be for five years. In no case
may a plan provide for payments over a period longer than five years. 11 U.S.C. §1322(d). During this time the law
forbids creditors from starting or continuing collection efforts.
Advantages of Chapter 13
Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly,
chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter,
individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless,
they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage
of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary
residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13
also has a special provision that protects third parties who are liable with the debtor on "consumer debts." This
provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual
makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have
no direct contact with creditors while under chapter 13 protection.
Chapter 13 Eligibility
Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as
long as the individual's unsecured debts are less than $360,475 and secured debts are less than $1,081,400. 11 U.
S.C. § 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index. A
corporation or partnership may not be a chapter 13 debtor. Id.
An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior
bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders
of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property
upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a debtor under
chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received
credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§
109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has
determined that there are insufficient approved agencies to provide the required counseling. If a debt management
plan is developed during required credit counseling, it must be filed with the court.
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