A Chapter 13 is a reorganization case where the debtors propose a repayment plan to pay their creditors. It is based on the debtors ability to pay after taking care of their most basic needs on a monthly basis. It allows a debtor to adjust his or her economic affairs without liquidating assets as may occur in a Chapter 7 liquidation case.

A Chapter 13 is a repayment plan submitted to the court to repay all or some of the debts owed over a period of 36 to 60 months (3 to 5 years). Once the court approves the debtors plan, the debtors payments into the plan are distributed out to the debtors creditors by a Chapter 13 trustee appointed by the court.

Upon the successful completion of the plan, the debtor receives a discharge of most debts, whether or not the plan proposed to repay all creditors 100%. Most Chapter 13 cases do not repay all creditors a dollar on the dollar for claims submitted in the case.

Chapter 13 cases should be considered by those who need bankruptcy, and

1. Want to stop a foreclosure sale, or cure pre-bankruptcy arrears on their home.
2. Need to prevent the repossession of their car, or recover property already taken by creditors
3. Can afford to pay their debts, but cannot get the creditors to agree to a reasonable plan
4. Want to show future creditors that they did all they could to repay their debts by reorganizing
5. The debtor is not eligible for Chapter 7 relief because of prior bankruptcy filings
6. The debtor earns too much to qualify for a Chapter 7 discharge.
7. The debtor needs to stop late charges and interest on credit cards to be able to make ends meet
8. The debtor wants to protect a codebtor (co-signer) on an obligation by invoking the §1301 stay
9. Want to pay the fair market value of a dependable car purchased more than 30 months ago
10. Owe taxes that cannot be discharged in bankruptcy, but can be paid off in a Chapter 13
11. Owe debts that cannot be discharged in a Chapter 7 but are dischargeable in a Chapter 13

It is important to remember that in order to receive relief in Chapter 13, the debtor must propose a plan that is approved by the judge. In order to do this, the plan must meet some rigorous tests in how it is prepared and presented. Most cases filed without the aid of an experienced bankruptcy attorney are dismissed by the court before completion. This means that creditors can simply resume collection efforts as before.

The calculation of Disposable Income under the new bankruptcy law is very cumbersome and confusing. For bankruptcy purposes, Disposable Income no longer simply means the money that you have left over after living expenses are paid at home. The new law calculates income as an average of earnings over the previous 6 months, less expenses according to IRS standards for a family your size. The real amounts left in your bank account each month may actually be more or less than your disposable income as calculated according to federal law.

In spite of all of these complicated provisions of the law, most debtors are better off in a Chapter 13 proceeding than trying to fend off the creditors on their own.