Chapter 13, entitled Adjustment of Debts
of an Individual With Regular Income, is designed for an individual debtor who has a regular source of income. Chapter 13
is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because
it allows the debtor to propose a "plan" to repay creditors over time – usually three to five years. Chapter
13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test. At a confirmation hearing,
the court either approves or disapproves the debtor's repayment plan, depending on whether it meets the Bankruptcy Code's
requirements for confirmation. Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains in
possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor's anticipated
income over the life of the plan.
Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the
payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and
other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated)
under chapter 13 than the discharge under chapter 7.
CHAPTER 13 DEBT LIMITS
SECURED DEBT $1,081,400
UNSECURED DEBTS $360,475
Remove junior unsecured liens (lien stripping)
You can remove junior liens from your residence if the FMV of your residence
is less than the principal amount you owe on the first mortgage. When the first mortgage is underwater,
the junior mortgages are in effect unsecured; there is no equity for the junior mortgages. To remove the
junior lien you must file a Chapter 13 Bankruptcy in Federal Bankruptcy Court. This is the only sure way
to decrease the amount you owe on your residence; and only works if you have junior liens that completely underwater.