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CHAPTER 13 RELIEF IS A REORGANIZATION PLAN FOR INDIVIDUALS. Chapter 13 is designed for those individuals who have the ability to repay their creditors a portion of the debts owed.


(1) The debtor must either repay 100% of the debt owed or must commit all disposable income into the plan for either three or five years;

(2) The debtor must pay unsecured creditors at least as much as they would have received if the debtor had filed for liquidation under Chapter 7 relief; and

(3) The debtor must be able to fund a chapter 13 plan.

The debtor’s disposable income is generally calculated from Form B22A, also known as the Means Test. This theoretical analysis relies solely upon IRS National and Local Allowances and therefore bears little similarity to the debtor’s actual monthly income vs. expenses. The Chapter 13 debtor frequently encounters difficulty proposing a plan that provides all disposable income as calculated by the Means Test and that is feasible given the debtor’s actual income and expenses. The debtor must in reality have funds remaining at the end of the month after paying all necessary expenses in order to fund the plan. The plan becomes unfeasible without actual disposable income. The only other constraint on the chapter 13 debtor is that he or she provide unsecured creditors through the chapter 13 plan at least as much as they would have received if the debtor had filed for liquidation under Chapter 7 relief.

If the debtor is unable to afford the chapter 13 plan payments calculated from the Means Test, the debtor may opt to voluntarily dismiss the case, negotiating with the assigned chapter 13 trustee for a more reasonable plan payment, oppose the trustee’s motion to dismiss by pleading to the court that special circumstances exist which warrant a reduction in the plan payment, or convert to chapter 7 liquidation. The chapter 13 trustee is financially motivated to work with the chapter 13 debtor, which could amount to lower plan payments. If the debtor cannot afford the chapter 13 plan payments as established by the Means Test and consequently falls out of the plan, the trustee’s earnings would suffer. In other words, chapter 13 trustees and debtors should both work toward the same end, proposing a feasible chapter 13 plan that will be successful.

THE CHAPTER 13 DEBTOR RECEIVES A DISCHARGE OF DEBTS AFTER MAKING ALL REQUIRED PLAN PAYMENTS.  Most but not all debts are eliminated with a bankruptcy.  Dischargeable debts typically include medical debt, credit card debt, personal loans, some judgments, payday loans, vehicle deficiencies, mortgage deficiencies, and certain tax debt.  Debt incurred by fraud is presumed fraudulent and non-dischargeable.

A debtor whose "current monthly income" falls below the applicable state median income applicable to the debtor must fund a repayment plan for 3 years unless the court approves a longer period not to exceed five years. A debtor whose "current monthly income" exceeds the state median income applicable to the debtor must fund a repayment plan for five (5) years according to 11 U.S.C. §1322(d).

CHAPTER 13 BANKRUPTCY IS BENEFICIAL IN CERTAIN CIRCUMSTANCES. It may be the only option for the debtor who has fallen behind on his or her mortgage payments. The chapter 13 would give the debtor additional time, usually three to five years, to bring the mortgage current. A chapter 13 also offers an individual additional time to repay certain debt to creditors such as the Internal Revenue Service and child support claimants who might demand immediate payment. Furthermore, Chapter 13 relief is available to the debtor who is not eligible for Chapter 7 relief.

Chapter 13 has been used as a tool to stay creditors’ collection efforts while allowing sufficient time to pass to allow the debtor to become eligible for chapter 7 relief. Such a chapter 13 debtor would allow his or her chapter 13 case to be dismissed before receiving a discharge and then file a new petition under chapter 7 relief.

CHAPTER 13 CASES HAVE A LOW SUCCESS RATE. It is estimated that 85% to 90% of Chapter 13 cases fail. The reasons for this high failure rate include the confirmation of an unrealistic plan, a decrease in the debtor’s income, or substantial increase in the debtor’s expenses. Much in a debtor’s life can change in three or five years. It is not uncommon for the debtor’s situation to change dramatically while a chapter 13 case is pending resulting in the debtor’s inability to make all required plan payments. However, modifications of the chapter 13 plan are permissible and are typically welcomed by the chapter 13 trustee.

INDIVIDUALS ARE SUBJECT TO CERTAIN RESTRICTIONS WHEN FILING CHAPTER 13. Debtors who have in excess of certain debt limits, namely $1,149,525 in secured debts and $336,900.00 in unsecured debts, are ineligible for chapter 13 relief. Generally, individuals are also ineligible for chapter 13 discharge unless they wait four (4) years from a prior discharged chapter 7 case or two (2) years from a prior discharged chapter 13 case. Chapter 13 may be used to repay creditors demanding immediate payment over a period of three to five years nonetheless. The court simply will not issue a discharge of the debtor’s unsecured debts if the debtor had a prior chapter 7 case discharged within preceding four years or a prior chapter 13 case discharged within the preceding two years.

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