Chapter 13 (Individual Reorganization)

Chapter 13 is the bankruptcy proceeding available to individuals with regular income, providing for repayment of debts over 3-5 years through a court-approved plan. Chapter 13 allows debtors to retain assets (including non-exempt property) by paying value over the plan term, distinguishing it from Chapter 7 where non-exempt assets are liquidated. Chapter 13 is common in mortgage cure situations, tax debt repayment, and where Chapter 7 is not available (above-median income) or undesirable (asset retention).

Eligibility, § 109(e)

Chapter 13 eligibility requires: (1) individual (or individual with spouse), no entities; (2) regular income, sufficient to fund plan payments; (3) debt limits, combined secured and unsecured debts under approximately $2.75M (periodic adjustments). The debt limit is important: high-debt individuals may need Chapter 11 instead. Individuals filing jointly with spouse can use combined income but must satisfy combined debt limits.

Plan structure

Chapter 13 plan must provide: (1) plan term, 3 years (below-median income) or 5 years (above-median income); (2) full payment of priority claims, taxes, domestic support, certain other priority debts; (3) secured creditor treatment, typically retain liens with payment of value over plan term; (4) unsecured creditor treatment, at minimum, what they would receive in Chapter 7 (best interests test); often pro rata of disposable income; (5) regular payments, typically monthly to trustee. Plan administered by Chapter 13 trustee.

Common uses

Chapter 13 typical scenarios: (1) mortgage cure, paying back arrears over plan term while resuming current payments; (2) tax debt repayment, priority tax debts paid over 3-5 years; (3) above-median income debtors not eligible for Chapter 7; (4) asset retention, protecting non-exempt assets from liquidation; (5) second mortgage stripping, voiding wholly underwater junior liens; (6) protection of co-debtor on consumer debts (§ 1301 codebtor stay). Many filings combine multiple goals.

Discharge, § 1328

Chapter 13 discharge issued after completion of plan payments. Discharge is broader than Chapter 7, covers some debts non-dischargeable in Chapter 7 (so-called "superdischarge"). Excluded from Chapter 13 discharge: (1) certain priority taxes; (2) domestic support obligations; (3) certain student loans; (4) drunk-driving liability; (5) criminal restitution; (6) debts incurred through fraud (with limitations). Hardship discharge available where plan completion impossible due to circumstances beyond debtor's control.

Conversion and dismissal

Chapter 13 cases can be converted or dismissed: (1) conversion to Chapter 7, debtor right or for cause; common when plan completion impossible; (2) dismissal, for cause including failure to make payments, failure to file plan; (3) conversion to Chapter 11, rare; for above debt-limit situations. Chapter 13 has high failure rate, substantial percentage of plans never complete due to circumstances changing during plan term.