Chapter 13 Bankruptcy

Chapter 13 Bankruptcy Overview

Chapter 13 is designed for individuals—including sole proprietors—who need a structured way to manage debt while protecting assets such as a home, vehicle, or business equipment. Unlike Chapter 7, which focuses on liquidation, Chapter 13 provides a supervised repayment plan that allows debtors to reorganize their financial affairs while maintaining ownership and control of their property.

Key Benefits of Chapter 13

Chapter 13 offers powerful tools that are not available in other types of bankruptcy. Through a confirmed repayment plan, debtors may:

• Stop foreclosure proceedings and pay past-due mortgage or property tax amounts over time
• Prevent eviction under certain circumstances
• Cure defaults and reinstate loans
• Assume or reject leases and executory contracts
• Restructure secured debts, including the possibility of modifying certain home mortgages, auto loans, or other collateralized claims
• Eliminate most unsecured debts once plan payments are completed

Debts That Can Be Resolved or Discharged

Upon completion of the plan, most pre-petition unsecured debts can be discharged, including:

• Credit cards
• Medical bills
• Utility arrears
• Personal loans
• Lines of credit
• Mortgage or auto deficiencies
• HOA or condominium dues
• Rejected lease or contract liability
• Certain older income tax debts
• Personal guarantees
• Debts related to divorce or separation property settlements

Who Qualifies for Chapter 13?

There is no means test and no income-based disqualification for Chapter 13. The debtor must have a reliable source of income to support plan payments.

Debt Limits

To file Chapter 13, total debts must be within statutory limits – less than $2,750,000

Control of Assets During the Case

The debtor keeps possession and control of all property and may use, sell, or lease assets in the ordinary course of business. Transactions outside the ordinary course require court approval.

A Chapter 13 trustee:

• Reviews financial disclosures
• Oversees plan feasibility and confirmation
• Receives and distributes plan payments
• Ensures compliance with bankruptcy requirements

The Co-Debtor Stay

A co-debtor stay also protects certain third parties jointly liable on consumer debts.

The Chapter 13 Plan

The debtor must file a repayment plan within 14 days of the petition. Creditors do not vote on the plan but may object.

To be confirmed, a Chapter 13 plan must:

• Be proposed in good faith
• Be feasible
• Provide for full repayment of priority debts over 3–5 years
• Pass the Best Interest of Creditors Test (pay unsecured creditors at least what they would receive in Chapter 7)
• Satisfy the Disposable Income / Best Efforts Test (commit all projected disposable income for the plan duration)

Discharge in Chapter 13

After completing all plan payments, the debtor receives a discharge. The Chapter 13 discharge is broader than Chapter 7, covering certain obligations that Chapter 7 does not discharge, including some divorce-related property settlement debts.

If you are considering Chapter 13 or need assistance developing a feasible repayment plan, contact Bankruptcy Attorney Co. to explore your options.