In Chapter 13 Bankruptcy, debtors prepare a Chapter 13 plan in which they propose to use their “disposable” future income for a period of three or five years (depending on their income) to repay their debts. Most Chapter 13 bankruptcy debtors do not repay 100% percent of their debt. In Chapter 13, debtors keep their property (unless they decide to surrender some property). If the proposed Chapter 13 plan meets the requirements of the Bankruptcy Code, it is approved by the bankruptcy court. If the debtors income increases or decreases during Chapter 13 plan period, the plan may be modified and the plan payments may increase or decrease. When debtors make all plan payments, they receive Chapter 13 discharge. Chapter 13 discharge is broader than Chapter 7 discharge and includes also discharge of (i) debts to a former spouse (other than domestic support obligations) incurred in the course of divorce or separation or (ii) debts for willful and malicious injury or (iii) for a fine, penalty of forfeiture payable to governmental unit.
Only individuals with regular income that owe unsecured debts of less than $360,475 and secured debt of less than $1,081,400 may file a Chapter 13 bankruptcy. Chapter 13 provides certain tools, not available in Chapter 7 bankruptcy, such as curing default (including mortgage and car payment default), modification of certain debts (with the exception of debt secured by debtors’ residence), and assumption or rejection of executory contracts or unexpired leases. A car loan can be reduced to the car value only if the loan was obtained more than 910 days before the Chapter 13 bankruptcy filing.