Chapter 13 is that part (or chapter) of the Bankruptcy Code under which a person may repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. The Bankruptcy Code is that portion of the federal laws that deal with bankruptcy. A person who files under chapter 13 is called a debtor. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtor's plan, most creditors will be prohibited from collecting their daims from the debtor during the course of the case. The debtor must make regular payments to a person called the chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.

How does chapter 13 differ from chapter 7 for a debtor?

The basic difference between chapter 7 and chapter 13 is that under chapter 7 the debtor's nonexempt property (if any exists) is liquidated to pay as much as possible of the debtor's debts, while in most chapter 13 cases a portion of the debtor's future income is used to pay as much of the debtor's debts as is feasible considering the debtor's circumstances. As a practical matter, under chapter 7 the debtor loses all or most of his or her nonexempt property and receives a chapter 7 discharge, which releases the debtor from liability for most debts. Under chapter 13, the debtor usually retains his or her nonexempt property, must pay off as much of his or her debts as the court deems feasible, and receives a chapter 13 discharge, which is broader than a chapter 7 discharge and releases the debtor from liability for several types of debts that are not dischargeable under chapter 7. However, a chapter 13 case normally lasts much longer than a chapter 7 case and is usually more expensive for the debtor.

When is chapter 13 preferable to chapter 7 for a debtor?

Chapter 13 is usually preferable for a person who - (1) wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time, (2) has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case, (3) is not eligible for a discharge under chapter 7, (4) has one or more substantial debts that are dischargeable under chapter 13 but not under chapter 7, or (5) has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.

How does chapter 13 differ from a private debt consolidation service?

In a chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor's property, to force unsecured creditors to accept a chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.

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