§ 8.10 — The Pleasures of Possession and Un-repossession
Revised: April 20, 2016
One of the special advantages of a Chapter 13 case is that the debtor remains in possession and control of all estate property, including property acquired while the case is pending.1 In a Chapter 7 case, the debtor’s property is controlled by a trustee and is subject to liquidation. The Chapter 13 debtor keeps the car, the furniture and the house—a tremendous advantage for financially distressed individuals who have much difficulty replacing items of property.
The exclusive right of the Chapter 13 debtor to possess and use property of the estate goes beyond property on hand at the petition to include the extraordinary power to undo prepetition repossessions by creditors.2 Unlike Chapter 7 debtors, a Chapter 13 debtor can command return of property repossessed before the petition and then formulate a plan to keep and use that un-repossessed property without regard to the lienholder’s druthers.
Chapter 13 is in essence a way of paying creditors the value in a debtor’s estate over time and without the disruption caused by liquidation. For example, an unencumbered automobile in a Chapter 7 case would ordinarily be liquidated by the Chapter 7 trustee and the proceeds distributed to creditors. In a Chapter 13 case, the debtor remains in possession of even an unencumbered automobile so long as creditors are compensated for the value of that automobile through a confirmed plan. This advantage—to defer the payment to creditors of the value of the estate while remaining in possession of estate property—is a significant incentive to consider Chapter 13.
1 See 11 U.S.C. §§ 541, 1303, 1304 and 1306. See also § 45.1 Debtor Has Exclusive Possession and Control of Estate Property.