Chapter 13 – Adjustment of Debts of an Individual With Regular Income
Chapter 13 allows the debtor(s) with regular income to propose a plan for paying debts. The court will enjoin collection actions while the debtor pays the debts under the plan.
Chapter 13 debtors are entitled to retain possession of their property while the plan is in effect. As of 2010, to be eligible for Chapter 13, debtors must have non-contingent, liquidated, unsecured debts of less than $360,475 and secured debts of less than $1,081,400. These limits are subject to periodic adjustments. If an individual has a regular income, he or she need not be a wage earner.. Also, a debtor must undergo a briefing from an approved nonprofit budget and credit-counseling agency before filing the case.
Debtors must file all tax returns for tax years within 4 years before the petition date, and they must be filed by the first date set for the §341(a) meeting.
Within 14 days after the petition is filed, the debtor must file a plan that specifies how he or she will pay the debts from future income or existing assets. Generally, the plan will provide for payments to be made over a period of up to 3 years; with leave of court, it may extend to 5 years The debtor’s plan is not permitted to modify the rights of a creditor whose claim is secured only by the debtor’s residence. Chapter 13 also provides for an automatic stay of actions to collect the debtor’s consumer debts from a co-debtor.
The debtor’s plan must submit future earnings or income to the court’s jurisdiction and provide for payments to a trustee, who pays the creditors. The plan must provide for payment in full of all priority claims and must classify other claims for payment. Within 30 days after filing a Chapter 13 plan, the debtor must begin making payments to the Chapter 13 trustee unless the court orders otherwise. If the plan is confirmed, the trustee will apply the payments in accordance with that plan; if the plan is not confirmed and the case is dismissed or converted to Chapter 7, the trustee must return the funds to the debtor or the Chapter 7 trustee, as the case may be, after deducting allowed administrative expenses. If a Chapter 13 case is converted to Chapter 7 rather than dismissed, the debtor should be able to claim applicable exemptions.