Chapter 13 is designed for individuals or married couples with a regular source of income and is often considered to be an “individual reorganization”. A business is not permitted to file a case under Chapter 13, though an individual debtor who is self-employed is able to see bankruptcy relief under this Chapter. Chapter 13 cases are similar in a way to Chapter 11 cases in that the Chapter 13 Debtor is required to propose a debt-adjustment Plan to settle both secured and unsecured debts over a three to five year period which is to be funded in the form of monthly payments by the Debtor to the Trustee appointed in the case. Also, as in a Chapter 11 case, the Debtor remains in possession of all property while the case is pending. The Trustee collects the payments made by the Debtor and pays Creditors as provided in the Court-approved Chapter 13 Plan filed by the Debtor.
A Chapter 13 Debtor is permitted to propose wide-reaching modifications of debts in the Chapter 13 Plan though not necessarily to the same extent as what a Chapter 11 Debtor can propose. A Chapter 13 Debtor (like a Chapter 11 Debtor) is permitted to seek to “value” some secured claims with the same result that the Creditor’s secured claim can be reduced or eliminated as a secured claim entirely and rendered unsecured. As in Chapter 11 cases, these Motions can be filed by negative-notice which puts the onus on the Creditor to oppose the Motion in order to prevent it from being granted without a hearing. Creditors have the ability to object to the Chapter 13 Plan that the Debtor proposes as well as the ability to oppose any motions and other pleadings filed by the Debtor which affect the Creditor’s claims. If you are a Creditor involved in a Chapter 13 case make sure to contact your attorney if you receive a Motion or Debtor’s Plan which seeks to “value” your secured claim or otherwise modify your secured claim in any way.
As with the filing of a bankruptcy case under any Chapter, an automatic stay of nearly all collection efforts arises when a Chapter 13 case is filed so in nearly all instances Court permission is necessary for a Creditor to pursue its lien against the Debtor’s property outside of the bankruptcy process. Taking action as to the Debtor or the Debtor’s property while the bankruptcy case is pending and while the automatic stay is in effect may result in sanctions being imposed so its important for Creditors to be wary of the automatic stay and consult an attorney prior to taking action.