Brief Overview of Chapter 13. When filing a Chapter 13 bankruptcy, the Debtor may retain all of his or her possessions. The trade-off is that he or she must propose a plan (typically, for a 5-year period) that devotes a set amount of future income to pay down all or at least a portion of the accumulated debt. The amount of the monthly plan payment is calculated according to a variety of factors and is subject to several tests. The assistance of a competent counsel is strongly and openly encouraged by most bankruptcy judges.
In contrast to a Chapter 7 bankruptcy, a Chapter 13 debtor may retain his or her property regardless of whether or not it is exempt and the Debtor adheres to the provisions of the Plan. A Bankruptcy Court Judge will confirm a Plan as long as it is feasible, given the Debtor’s financial situation, and sufficient funds are available for distribution to creditors. Creditors may object to a Debtor’s proposed Plan, but otherwise have no say in the Plan’s terms. Payments are made by Wage Order to the Chapter 13 Trustee’s office, which then distributes the money in accordance with the Plan.
Once the Debtor has completed the terms of the Plan, the Court will order a discharge of all remaining unsecured debt. If the Debtor fails to adhere to the terms of the Plan, the Court may dismiss the case. The creditors, then, may resume their collection of their respective debts.
As to the waiting periods for filing a Chapter 13 case, two years must pass after filing an initial case under Chapter 13 to pursue another 13 (assuming a discharge in the first case). Of course, this rule is probably meaningless since it is rare to get a discharge in a 13 within two years. If, however, a Debtor filed and received a discharge in a prior chapter 13 case, then the time limit for determining whether one qualifies for a Chapter 7 or Chapter 13 depends on the percentage of unsecured debt repaid in the first case. If more than 70% of total unsecured debt was paid in the Chapter 13 case, there is no waiting period to file under Chapter 7. Otherwise, a Debtor must wait six years after the first 13 to file for Liquidation (in most cases, this would be 1-2 years following discharge).