Chapter 13

How does chapter 13 work? Who can file a chapter 13 case?

Debtors in chapter 13 keep all of their property, whether or not it is exempt, but they make regular payments on their debts out of the money that they earn after filing the bankruptcy case. These payments must be at least as much as would have been paid to creditors in a chapter 7 case. The payments are made to a trustee, who distributes the payments to the creditors. The payments are made in regular installments, according to a plan that the debtor draws up (usually with the help of an attorney). The plans last either until the debts are paid in full or until the end of a three- to five-year period. The debtor receives a discharge at the end of the plan. Some kinds of debts that are not discharged in chapter 7 cases—for example, debts arising from fraudulent use of a credit card—may be discharged in chapter 13.

A chapter 13 case can be filed by most consumer debtors. There are two principal requirements: First, the debtor must have regular income, although this need not be from a job—regular benefit payments or rental income could qualify. Second, the debtor must not have excessive debt. Chapter 13 is available only to debtors who do not owe more than $750,000 in secured debt (like home mortgages and auto loans), and more than $250,000 in unsecured debt (like most credit card debt).

If a debtor is behind in house or car payments, can chapter 13 stop a foreclosure or repossession from taking place?

Yes. Unlike chapter 7, where the debtor can usually stop a foreclosure or repossession only if the creditor agrees to a reaffirmation, a debtor in chapter 13 can provide for car and mortgage payments in the chapter 13 plan, and the creditor can be required to accept these payments instead of proceeding with foreclosure or repossession.

What can be done if a debtor falls behind in payments after filing a chapter 13 case?

Debtors who have unexpected financial problems in a chapter 13 case should immediately consult with their attorneys. It is often possible to deal with changed circumstances by amending the chapter 13 plan. Also, it is sometimes possible to add to the plan debts that were incurred after the chapter 13 case is filed, so that they will be discharged with other debts at the completion of the plan. Finally, even after the plan is completed and the debtor receives a discharge in chapter 13, if unexpected circumstances arise that again make it impossible for the debtor to deal with new bills, the debtor may be able to file another bankruptcy case.

If you get a chapter 13 discharge, you cannot get a discharge under chapter 7 for six years. You also cannot get a discharge under chapter 13 for a period of four years after you obtained a discharge under chapter 7 or two years after you obtained a discharge under chapter 13.

Under BAPCPA, debtors must be current with all present Domestic Support Obligations. Otherwise, their chapter 13 case will be dismissed, leaving the debtor stuck not only with Domestic Support Obligations but also with all other creditors' claims. State courts will enforce wage deductions of 15% for creditors' claims and also whatever support obligations have been ordered by the divorce court. A debtor then could easily find more than 50% of his or her disposable income forcibly deducted from each paycheck.

I am behind in my child support, is this a problem?

You must maintain all Domestic Support Obligations, whether to your children or your ex-spouse, current to be eligible for chapter 13 relief. You cannot, in any event, modify, change, or otherwise affect your Domestic Support Obligations in bankruptcy court. Any relief which you may need because of your changed circumstances must be ordered by the divorce court. It is possible to pay "past" due domestic support obligations through a Chapter 13 plan of reorganization.