Chapter 13, or a “wage earner bankruptcy”, is meant for individual debtors only and is intended for those clients whose income or property ownership exceeds the statutory limits allowed for a Chapter 7 Bankruptcy.
There is also an unsecured debt limit of $360,475 and a secured debt limit of $1,081,400.
Because of the debt limits, most taxi medallion clients do not qualify for a chapter 13 bankruptcy.
The general intent of this chapter is for clients with a steady income that exceeds both their expenses and the statutory limit of income for their size of household, to pay a plan based on a prorated portion of their debt that is calculated in accordance with their income.
There are also mechanisms in this chapter designed to reinstate mortgage loans and incorporate payment arrears into a chapter 13 plan. The goal of Chapter 13 for clients who own distressed properties, is to attempt to retain them, however, these goals often are simply not affordable through a chapter 13 plan.
One of the disadvantages of a Chapter 13 plan is that a chapter 13 plan is paid from the filing date, not the date of confirmation of a plan, the way it is in Chapter 11, which is about 18 to 24 months after filing.
The payments under a Chapter 13 plan vs an individual Chapter 11 plan are almost always significantly higher. A chapter 13 trustee has the legal latitude to rule certain personal expenses excessive or non-essential and order that they be discontinued and the money allocated to the plan payments. There is no such mechanism in Chapter 11, though there are still rules and limitations on the kind of spending that can take place.
Chapter 13 also won’t work for someone who does not have a steady and reliable income stream. An individual chapter 11 is better in those cases, because it affords more flexible plan options, later on in the case.
A Chapter 13 may in theory be a good reorganizational option for those who do not qualify for a Chapter 7, but in application and experience, an individual Chapter 11 plan is, in most consumer debt cases ultimately significantly more affordable.
