Consumer & Small Business Reorganization

Chapter 13 is referred to as Adjustment of Debts of an Individual with Regular Annual Income, and generally permits individuals (and some small businesses) to keep their property by repaying creditors out of their future income.   

Under chapter 13, debts can be repaid in an affordable manner. Chapter 13 stops foreclosure, keeps the house, and allows mortgages to be paid current. Chapter 13 protects debtors from garnishments, tax levies, lawsuits and other creditor action during the life of the plan. Back taxes can be paid through chapter 13 without further interest or penalty and, in many cases, less that the full amount of the taxes has to be repaid.

Chapter 13 is only available to individuals with regular income.  Chapter 13 debtors propose a payment plan, which must be approved by the bankruptcy court. Payments are made to creditors through a trustee.  

A chapter 13 plan can only be proposed by the debtor.  The plan may modify debts secured by real property (except debts secured by the debtor's principal residence).  Generally a plan must provide that all of the debtor's disposable income for a three-year period be utilized to make payments under the plan.  The debtor must pay the chapter 13 trustee the amounts set forth in the plan.  Individuals who successfully complete their chapter 13 repayment plan will have their debts discharged.  A Chapter 13 case can be voluntarily dismissed or converted at any time.  

Unlike Chapters 7 or 11, Chapter 13 may only be commenced by the filing of a voluntary petition (payment plan) by the debtor. The stay also extends to collection actions against certain co-debtors of the debtor.  Creditors are prohibited from pursuing collection of a consumer debt from an individual co-debtor.  It is important to note that a discharge in Chapter 13, unlike a discharge in a Chapter 7, 11 or 12, discharges a debtor from all debts except child support and alimony debts, student loans, and debts arising from drunk driving.   

Read more about Chapter 13 Consumer and Small Business Reorganization