Personal Reorganization Procedure

A typical Chapter 13 case progresses through several critical, mandatory stages, beginning with the initial filing and ending with the final debt discharge.

• Filing and Automatic Stay: The debtor files the voluntary petition, schedules of income and assets, and the proposed repayment plan. This action immediately triggers an automatic stay, a powerful court order that halts nearly all creditor collection efforts, including foreclosure, wage garnishment, and lawsuits, providing immediate relief to the petitioner.
• Trustee Oversight and Payment: A bankruptcy trustee is appointed to administer the case, oversee the debtor's financial status, and manage the monthly plan payments. The debtor makes regular payments to this trustee, who is then responsible for distributing the funds proportionally to creditors according to the confirmed plan terms.
• Confirmation and Discharge: A judicial hearing is held to confirm the plan's compliance with all statutory rules, including the best interest of creditors test. Upon court confirmation, the debtor adheres to the monthly payment schedule. Successful completion of all payments results in a final discharge order, legally eliminating the remaining eligible debt balances.

Eligibility is strictly defined by having regular income and adhering to the statutory maximum debt thresholds.

• Regular Income Requirement: Chapter 13 is restricted to individuals (excluding corporations or partnerships) who possess a consistent and reliable source of income. This "regular income" can stem from various sources, including employment wages, self-employment profits, pension payments, or Social Security benefits, provided the income is sufficient and stable enough to fund the proposed 3-to-5-year repayment plan.
• Statutory Debt Ceilings: The total amount of a debtor's liabilities must not exceed limits periodically adjusted for inflation. As of April 1, 2025, the maximum permitted secured debt (debts backed by collateral like a mortgage) is $1,580,125, and the maximum unsecured debt (debts without collateral like credit cards or medical bills) is $526,700. Debtors exceeding these thresholds are ineligible for Chapter 13 and would typically need to explore Chapter 11 reorganization.

The law mandates that the plan be structured using the debtor's entire disposable income and must compare favorably to a Chapter 7 liquidation scenario.

• Best Interest of Creditors Test: This standard ensures that every unsecured creditor receives at least the same dollar amount in the Chapter 13 plan as they would have received if the debtor’s non-exempt assets were liquidated under Chapter 7. If the value of the debtor’s non-exempt property is high, the plan payment must be set high enough to meet this minimum repayment guarantee.
• Disposable Income Commitment: The debtor must commit all projected "disposable income" to the repayment plan for the mandatory term. Disposable income is the amount of income remaining after deducting essential and reasonably necessary living expenses, as well as required payments for secured debts and priority claims (like recent taxes). The amount is calculated using a federal "means test" and IRS standards, ensuring the debtor is making their maximum, verifiable effort to repay their obligations.

A qualified bankruptcy attorney significantly reduces the risk of errors and ensures the plan is confirmed smoothly by the court.

• Minimizing Filing and Confirmation Errors: Attorneys prevent common mistakes such as improper calculation of disposable income, miscategorization of debts, or submitting incomplete financial documentation, which frequently lead to case dismissal or extended delays. They possess the expertise to accurately apply the complex IRS and D.C. median income standards used in the means test calculation.
• Plan Drafting and Trustee Negotiation: The attorney drafts a legally sound and viable repayment plan that specifically addresses all statutory requirements, including the two core legal principles. They act as the debtor’s advocate, negotiating with the Chapter 13 trustee to resolve objections and modify plan terms as needed, ultimately securing the critical court confirmation order and paving the way for the final discharge of debt.