Any individual with regular income, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief so long as on the date of filing the individual's unsecured debts are less than $250,000 and secured debts are less than $750,000.

The decision to file a Chapter 13 instead of a Chapter 7 usually arises in four scenarios:

1. Substantial Non-Exempt Assets
   
   In circumstances where debtors have substantial excess assets over their allowed exemptions, but unmanageable debt, it may be more cost efficient to utilize Chapter 13 than to have the debtor attempt to redeem his excess value from the Chapter 7 Trustee. A successful Chapter 13 allows the debtor to retain his non-exempt assets and pay out the value of such assets to his creditors over an extended period of time.



2. Secured Arrearage - Debtors Delinquent on Payments to Secured Creditors
   
   An individual debtor faced with a threatened foreclosure of the mortgage on his or her principal residence can prevent an immediate foreclosure by filing a Chapter 13 petition. This is one of the most common reasons for filing a Chapter 13. When the debtor has fAlvin behind on his mortgage payments, the bank usually requires the arrearage to be cured by a lump sum payment. It is rare for a debtor to have sufficient cash to cure the arrearage under those circumstances. Chapter 13 affords the debtor the opportunity to impose an extended arrearage cure on an uncooperative creditor and stop a foreclosure sale. The debtor makes monthly payments to the Chapter 13 Trustee which includes the debtor's regular monthly mortgage payment, as well as a portion of the arrearage.



3. "Super Discharge"
   
   Certain types of debts are dischargeable under Chapter 13 but would otherwise not be eligible for discharge under Chapter 7. Debtors who have committed fraud upon creditors as contemplated under Section 523(A)(2) or Sections 523(A)(4) of the Bankruptcy Code but are capable of making partial restitution to their creditors under Chapter 13 may be discharged from the balance of the debt. The same applies to debtors who have caused a willful or malicious injury, which, while not dischargeable in Chapter 7, under Section 523(A)(6), is not similarly excepted under Chapter 13. The broader discharge is available in return for the willingness of the Chapter 13 debtor to undergo the discipline of a repayment plan for three to five years.



4. Co-Debtor Stay
   
   The filing of the petition under Chapter 13 automatically stays most collection actions against the debtor or the debtor's property. As long as the "stay" is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishment, or even telephone calls demanding payments. In Chapter 7 cases, such "stay" does not protect another party liable with the debtor on a particular debt. However, Chapter 13 contains a special automatic stay provision applicable to creditors. Specifically, after the commencement of a Chapter 13 case, unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a "consumer debt" from any individual who is liable with the debtor. Consumer debts are those incurred for consumer, as opposed to business, needs. The availability of this "co-debtor stay" may be beneficial for debtors who want to protect a co-debtor.

The most significant, potential disadvantage of a Chapter 13 is if the debtor is unable to fund the plan at any time during the plan period, the debtor would then have to either convert his Chapter 13 case to Chapter 7 or allow the case to be dismissed, and all the efforts (monetary payments) would be for nothing. Although the debtor would receive credit for payments already made, he might find himself in the same situation of facing a foreclosure on his home. Additionally, in most circumstances, when a Chapter 13 case is dismissed for failure to make plan payments, the dismissal is usually with prejudice for a six month period in which the debtor cannot file another bankruptcy petition.