Chapter 13 Bankruptcy Protection (Individual Debt Adjustment)

A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

  1. Background
  2. Advantages of Chapter 13 Bankruptcy Protection
  3. Chapter 13 Bankruptcy Eligibility
  4. How Chapter 13 Bankruptcy Works
  5. Chapter 13 Bankruptcy Forms
  6. Courts Costs and Filing Fees
  7. Automatic Stay (Stops Collection Actions)
  8. The Chapter 13 Bankruptcy Plan and Confirmation Hearing
  9. Making The Chapter 13 Bankruptcy Plan Work
  10. The Chapter 13 Bankruptcy Discharge
  11. The Chapter 13 Bankruptcy Hardship Discharge
  12. Notes
  13. State Bankruptcy Courts (List with links to website)

Up | 1. Background

Under chapter 13 protection, you propose a repayment plan to make installments to creditors over three to five years. If your current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” If your current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. §1322(d). During this time, the law forbids creditors from starting or continuing collection efforts.

Up | 2. Advantages of Chapter 13 Bankruptcy Protection

Chapter 13 offers you several advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers you an opportunity to save your home from foreclosure. By filing under this chapter, you can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, you must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows you to reschedule secured debts (other than a mortgage for your primary residence) and extend them over the life of the chapter 13 protection plan. Doing this may lower the payments.

Chapter 13 protection also has a special provision that protects third parties who are liable with you for “consumer debts.” This provision may protect co-signers.

Finally, chapter 13 acts like a consolidation loan under which you make plan payments to a chapter 13 trustee who then distributes payments to creditors. You have no direct contact with creditors while under chapter 13 protection.

Up | 3. Chapter 13 Bankruptcy Eligibility

Even if your self-employed or operating an unincorporated business, you’re eligible for chapter 13 relief as long as your unsecured debts are less than $360,475 and secured debts are less than $1,081,400. 11 U.S.C. § 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.

You cannot file under chapter 13 or any other chapter if, during the preceding 180 days, the court dismissed a prior bankruptcy petition due to your willful failure to appear before the court or comply with orders of the court or your petition was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e).

Also, you may not be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless, within 180 days before filing, you receive credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111.

There are exceptions in emergencies or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If you develop a debt management plan during required credit counseling, you must file it with the court.

Up | 4. How Chapter 13 Bankruptcy Works

A chapter 13 case begins when you file a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. Unless the court orders otherwise, you must also file with the court:

    1. schedules of assets and liabilities;
    2. schedule of current income and expenditures;
    3. schedule of executory contracts and unexpired leases; and
    4. statement of financial affairs. Fed. R. Bankr. P. 1007(b).

You must also file:

    1. certificate of credit counseling;
    2. copy of any debt repayment plan developed through credit counseling;
    3. evidence of payment from employers, if any, received 60 days before filing;
    4. statement of monthly net income and any anticipated increase in income or expenses after filing; and
    5. record of any interest you have in federal or state qualified education or tuition accounts. 11 U.S.C. § 521.

You must also provide the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that you had not filed when the case began). Married couples may file a joint petition or individual petitions. 11 U.S.C. § 302(a).

Up | 5. Chapter 13 Bankruptcy Forms

Official Bankruptcy Forms are not available from the court. They may be:

    1. Purchased at legal stationery stores or
    2. Downloaded FREE from

Up | 6. Courts Costs and Filing Fees

The courts must charge (subject to change):

    • $235 case filing fee; and
    • $39 miscellaneous administrative fee

Normally the fees must be paid to the clerk of the court upon filing. However, with the court’s permission, you may pay in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. The number of installments is limited to four, and you must make the final installment no later than 120 days after filing the petition. Fed. R. Bankr. P. 1006(b).

For cause shown, the court may extend the time of any installment, as long as you pay the last installment no later than 180 days after filing the petition. You may also pay the $39 administrative fee in installments. If you file jointly, the court charges only one filing fee and one administrative fee. You should be aware that failure to pay these fees may result in dismissal of the case. 11 U.S.C. § 1307(c)(2).

To complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, you must compile the following information:

    1. A list of all creditors and the amounts and nature of their claims;
    2. The source, amount, and frequency of the debtor’s income;
    3. A list of all of the debtor’s property; and
    4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Important Note! Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, you must provide the income and expenses of the non-filing spouse so that the court, the trustee and creditors can evaluate the household’s financial position.

When you file for chapter 13 bankruptcy protection, an impartial trustee is appointed to administer the case. 11 U.S.C. § 1302. In some districts, the U.S. trustee or bankruptcy administrator appoints a standing trustee to serve in all chapter 13 cases. 28 U.S.C. § 586(b). The chapter 13 trustee both evaluates the case and serves as a disbursing agent, collecting payments from you and making distributions to your creditors. 11 U.S.C. § 1302(b).

Up | 7. Automatic Stay (Stops Collection Actions)

Filing for chapter 13 bankruptcy protection “automatically stays” (stops) most collection actions against you and your property. 11 U.S.C. § 362. Filing the petition does not, however, stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses you provide.

Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a “consumer debt” from any individual who is liable along with you. 11 U.S.C. § 1301(a). Consumer debts are those incurred by an individual primarily for a personal, family, or household purpose. 11 U.S.C. § 101(8).

You may use chapter 13 protection to save your home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as you file the chapter 13 petition. You may then bring the past-due payments current over a reasonable period.

Warning! You can lose your home if the mortgage company completes the foreclosure sale under state law before the debtor files the petition.11 U.S.C. § 1322(c).

See foreclosure FAQ Here

You may also lose your home if you fail to make the regular mortgage payments that come due after filing for Chapter 13 protection. Between 21 and 50 days after filing for Chapter 13 protection, the chapter 13 trustee will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after you file. Fed. R. Bankr. P. 2003(a).

During this meeting, the trustee places you under oath, and both the trustee and creditors may ask you questions. You must attend the meeting and answer questions regarding your financial affairs and the proposed terms of the plan. 11 U.S.C. § 343. If a husband and wife file a joint petition, they both must attend the creditors’ meeting and answer questions. The law prohibits bankruptcy judges from attending the creditors’ meeting to preserve their independent judgment 11 U.S.C. § 341(c). The parties typically resolve problems with the plan either during or shortly after the creditors’ meeting.

Generally, you can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with the trustee before the meeting. In a chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002(c). A governmental unit, however, has 180 days from the date you file your case to file a proof of claim.11 U.S.C. § 502(b)(9).

After the meeting of creditors, you, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on your chapter 13 repayment plan.

Up | 8. The Chapter 13 Bankruptcy Plan and Confirmation Hearing

Unless the court grants an extension, you must file a repayment plan with the petition or within 14 days after you file the petition Fed. R. Bankr. P. 3015. You must submit a plan for court approval, and you must provide for payments of fixed amounts to the trustee regularly, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.

There are three types of claims: priority, secured, and unsecured.

Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of the bankruptcy proceeding.

Secured claims are those for which the creditor has the right to take back certain property (i.e., the collateral) if you do not pay the underlying debt.

Unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by you. See unsecured claims priority

The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless you contribute all “disposable income” – discussed below – to a five-year plan. 11 U.S.C. § 1322(a).

If you want to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If you used the obligation underlying the secured claim to buy the collateral (e.g., a car loan), and you incurred the debt within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which may be less due to depreciation). Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as you make up (i.e., pay) any arrearage during the plan. Always consult an attorney to determine the proper treatment of secured claims in the plan.

The plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected “disposable income” over an”applicable commitment period,” and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor’s assets were liquidated under chapter 7. 11 U.S.C. § 1325.

In chapter 13, “is income (other than child support payments received by the debtor) less than reasonably necessary for the maintenance or support of the debtor or dependents and less charitable contributions up to 15% of the debtor’s gross income. If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses. 11 U.S.C. § 1325(b)(2)(A) and (B).

The “applicable commitment period” depends on your current monthly income. The applicable commitment period must be three years if current monthly income is less than the state median for a family of the same size – and five years if the current monthly income is greater than a family of the same size. 11 U.S.C. § 1325(d). The plan may be less than the applicable commitment period (three or five years) only if you pay the unsecured debt in full over a shorter period.

Within 30 days after filing the bankruptcy case, even if the court has not yet approved the plan, you must start making plan payments to the trustee. 11 U.S.C. § 1326(a)(1). If any secured loan payments or lease payments come due before your plan is confirmed (typically home and automobile payments), you must make adequate protection payments directly to the secured lender or lessor – deducting the amount paid from the amount that would you otherwise pay to the trustee.

No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is feasible and meets the standards for confirmation outlined in the Bankruptcy Code. 11 U.S.C. §§ 1324, 1325.

Creditors will receive 28 days’ notice of the hearing and may object to confirmation. Fed. R. Bankr. P. 2002(b). While creditors make a variety of objections, the most frequent ones are that payments offered under the plan are less than creditors would receive if the court liquidated your assets or that your plan does not commit all of your projected disposable income for the three or five years applicable commitment period.

If the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan “as soon as is practicable.” 11 U.S.C. § 1326(a)(2). If the court declines to confirm the plan, you may file a modified plan. 11 U.S.C. § 1323. You may also convert the case to a liquidation case under chapter 7. 4 11 U.S.C. § 1307(a). If the court declines to confirm the plan or the modified plan and instead dismisses the case, the court may authorize the trustee to keep some funds for costs, but the trustee must return all remaining funds to you (other than funds already disbursed or due to creditors). 11 U.S.C. § 1326(a)(2).

Occasionally, a change in circumstances may compromise your ability to make plan payments. For example, a creditor may object or threaten to object to a plan, or you may inadvertently have failed to list all creditors. In such instances, the plan may be modified either before or after confirmation. 11 U.S.C. §§ 1323, 1329. Modification after confirmation is not limited to an initiative by you but might be at the request of the trustee or an unsecured creditor. 11 U.S.C. § 1329(a)

Up | 9. Making The Chapter 13 Bankruptcy Plan Work

The provisions of a confirmed plan bind you to each creditor. 11 U.S.C. § 1327. Once the court confirms the plan, you must make the plan succeed. That is, you must make regular payments to the trustee either directly or through payroll deduction, which will require adjustment to living on a fixed budget for a prolonged period. Furthermore, while confirmation of the plan entitles you to retain property as long as you make payments, you may not incur new debt without consulting the trustee, because additional debt may compromise your ability to complete the plan. 11 U.S.C. §§ 1305(c), 1322(a)(1), 1327.

You may make plan payments through payroll deductions. This practice increases the likelihood that you’ll make payments on time and that you will complete the plan. In any event, if you fail to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a liquidation case under chapter 7 of the Bankruptcy Code. 11 U.S.C. § 1307(c). The court may also dismiss or convert your case if you fail to pay any post-filing domestic support obligations (i.e., child support, alimony), or fails to make required tax filings during the case. 11 U.S.C. §§ 1307(c) and (e), 1308, 521.v

Up | 10. The Chapter 13 Bankruptcy Discharge

The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel before filing regarding the scope of the chapter 13 discharge.

As the chapter 13 debtor, you are entitled to a discharge upon completion of all payments under the chapter 13 plan so long as you:

    1. certifies (if applicable) that all domestic support obligations that came due before making such certification were paid;
    2. has not received a discharge in a prior case filed within a certain time frame (two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases); and
    3. has completed an approved course in financial management (if the U.S. trustee or bankruptcy administrator for the debtor’s district has determined that such courses are available to the debtor). 11 U.S.C. § 1328.

The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on your homestead exemption. 11 U.S.C. § 1328(h).

The discharge releases you from all debts provided for by the plan or disallowed (under section 502), with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against you to collect the discharged obligations.

As a general rule, the discharge releases you from all debts provided for by the plan or disallowed, except for certain debts referenced in 11 U.S.C. § 1328.

Debts not discharged in chapter 13 include:

    • certain long term obligations (such as a home mortgage);
    • debts for alimony or child support;
    • certain taxes;
    • debts for most government-funded or guaranteed educational loans or benefit overpayments;
    • debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs; and
    • debts for restitution or a criminal fine included in a sentence on your conviction of a crime.

WARNING! To the extent that you do not pay, under the chapter 13 plan, you will still be responsible for these debts after the bankruptcy case has concluded.

Debts for money or property obtained by false pretenses, debts for fraud or defalcation (misuse something, especially money or property, that belongs to somebody else and held in trust) while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by you that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable. 11 U.S.C. §§ 1328, 523(c); Fed. R. Bankr. P. 4007(c).

The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in chapter 13, but not in chapter 7, include debts for willful and malicious injury to property (as opposed to a person), debts incurred to pay nondischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. 11 U.S.C. § 1328(a).

Up | 11. The Chapter 13 Bankruptcy Hardship Discharge

After confirmation of a plan, circumstances may arise that prevent you from completing the plan. In such situations, you may ask the court to grant a “hardship discharge.” 11 U.S.C. § 1328(b).

Generally, such a discharge is available only if:

    1. your failure to complete plan payments is due to circumstances beyond your control and through no fault of your own;
    2. creditors have received at least as much as they would have received in a chapter 7 liquidation case; and
    3. modification of the plan is not possible.

Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case. 11 U.S.C. § 523.

Up | 12. Notes

  1. The “current monthly income” received by you is a defined term in the Bankruptcy Code and means the average monthly income received over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and including income from your spouse if the petition is a joint petition, but not including social security income or certain payments made because you are the victim of certain crimes. 11 U.S.C. § 101(10A).

  2. In North Carolina and Alabama, bankruptcy administrators perform similar functions that U.S. trustees perform in the remaining 48 states. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the Department of Justice administers the U.S. trustee program. For purposes of this publication, references to U.S. trustees are also applicable to bankruptcy administrators.

  3. Section 507 sets forth ten categories of unsecured claims which Congress has, for public policy reasons, given priority of distribution over other unsecured claims.

  4. The courts charge a fee ($15) for converting a case under chapter 13 to a case under chapter 7.