Chapter 13: “Reorganization”

Chapter 13 bankruptcy is also known as “Reorganization” or “wage earner” bankruptcy. Under Chapter 13, you need a reliable source of income in order to repay a percentage of your debt.

Chapter 13 bankruptcy requires a repayment plan that details repayment of your debts over a period of three to five years. The amount you pay depends on (1) your income, (2) your debt, and (3) the amount your unsecured creditors would have received if a Chapter 7 trustee liquidated your non-exempt assets.

For secured debts (mortgage and car loan), Chapter 13 gives you the option to repay missed payments (arrears) in order to avoid repossession/foreclosure. These past due amounts can be included in the repayment plan and paid over the three to five year period of the plan.

In Chapter 13 you usually remain in possession all of your assets, because there is no “liquidation” by the trustee. You do not receive an immediate discharge of debts. You must complete the payments required under the plan before you receive a discharge. You are protected from lawsuits, repossessions, and garnishments while the plan is in effect. More debts are eliminated under chapter 13 than under chapter 7.