Chapter 13

Reorganization for Individual Debtors
Chapter 13 provides individual debtors (including small business operators) with the same opportunity to organize and resolve their financial problems as large businesses have under Chapter 11 — but through a less cumbersome and expensive procedure.  It encourages them to adjust their debts, rather than liquidate their assets.

If you are facing foreclosure on your home, Chapter 13 provides a powerful remedy.  Chapter 13 permits a debtor to deal comprehensively with both unsecured (credit card debt, unpaid medical bills, and personal loans for example) and secured debts (home mortgages and car loans).  This is accomplished through the chapter 13 plan, which only the debtor may propose, and that sets out how the debtor desires to make payments to various creditors.  These payments are ordinarily made primarily from the debtor’s income rather than assets, although the plan may provide for liquidation of property.  Typically the debtor makes most of the payments to the chapter 13 trustee, who disburses them to creditors after confirmation of the plan in accordance with the dictates of the plan.

A chapter 13 plan can provide for the payment of secured claims (home mortgages and car loans, for example) in order to permit the debtor to retain collateral for those claims and may provide for the cure of arrearages (past due payments) on long term debts such as home mortgages.  The debtor may retain “nonexempt” property if the plan provides that unsecured creditors will receive the property’s present value in the form of plan payments.

If the debtor fails to complete the plan, and is unable to propose an acceptable modified plan, the debtor may convert the case to chapter 7 or seek a hardship discharge, which is generally coextensive with a chapter 7 discharge.  If the debtor fails to comply with the plan and does not choose one of these options, the case is usually dismissed, although the court may order the case converted to chapter 7.

If the debtor completes the chapter 13 plan, the debtor receives a discharge that excepts fewer types of debts than the discharge available under other chapters.

Chapter 13 can be a good solution for people who need time to pay off certain debts and who have enough income to meet the Chapter 13 requirements.