Chapter 13

A Chapter 13 matter is called a “Wage Earner Plan” under the bankruptcy code, but a more descriptive term would be a “consumer reorganization”. A debtor does not have to be a “wage earner” to qualify to file a Chapter 13 matter, anyone with “regular income”, even self-employment income, qualifies to file a Chapter 13 matter, provided they owe less than $394,725.00 in unsecured debt and less than $1,184,200.00 in secured debt (these amounts are adjusted each year for inflation). “Secured debt” means debt that you have pledged property to ensure that the creditor gets paid, a house mortgage or car title lien for example.

In a Chapter 13 matter a plan of repayment is filed with the court, which the debtor proposes to pay out a percentage of his or her debt over a period of up to 5 years. Chapter 13 cases are most appropriate where a debtor has property that would otherwise be seized and sold by the bankruptcy trustee. The amount of the plan payment must at least equal what the creditors would receive had the debtor filed a Chapter 7 case. In addition, since the 2005 bankruptcy “reform”, the Chapter 13 plan payment must be equal to an amount calculated under rules mandated by that reform law. In addition to being able to keep your property in a Chapter 13 case, if you plan payment equals or exceeds 70% of your debt you do not “burn” your bankruptcy discharge. The payments under the plan are made to the Chapter 13 standing trustee who in turn distributes to each creditor their share of the payments.

Debtors in a Chapter 13 plan agree to submit themselves to the jurisdiction of the bankruptcy court for the duration of the Chapter 13 plan. This requires that the debtor have an ongoing cooperative arrangement with the Chapter 13 trustee and to commit the total amount of their “disposable income” (income minus allowable living expenses) to the payment of the plan debt. If the debtor’s income goes up significantly, or the debtor experiences a “windfall” then the plan payment may be modified at the request of the creditors or the Chapter 13 trustee. It is also important to note that during the time the Chapter 13 plan payments are being made, in all but the rarest of cases, those payments will be deducted directly from your pay check if you are employed.