What is a Chapter 13 bankruptcy?

A Chapter13 bankruptcy may be filed by individuals with regular income.  Debtors must present a plan to repay all or part of their debts.  The plan must provide for fixed monthly payments to be made to the Chapter 13 trustee for a period of three to five years, depending on income and other factors.  The plan must be approved by the court at a Confirmation Hearing.  The trustee begins collecting funds from the debtor during the first full month after the filing.  Following confirmation of the plan, the trustee begins to distribute funds to creditors according to the terms of the plan.

Filing a Chapter13 petition automatically “stays” (stops) most collection actions against  debtors or their property.  A Chapter13 case is often used to stop foreclosure proceedings and repay a mortgage delinquency, or to prevent the repossession of a vehicle.  As long as the automatic stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or demand payment.  However, there are many exceptions to the automatic stay (a criminal proceeding, for example), and in some instances the automatic stay may only be in place for a short period of time.

For more information about Chapter 13, refer to the Bankruptcy Basics Guide.