A Chapter 13 bankruptcy, often referred to as a wage-earner plan or reorganization of the debtor, differs greatly from the Chapter 7 liquidation. In a Chapter 13 if the debtor has regular income (usually earnings and wages) and unsecured debt of less than $336,900 and secured debt equal to or less than $1,010,650, the debtor qualifies to repay a portion of his/her debt in a Chapter 13 Plan. The percentage of the debt the debtor will pay will depend on several factors, but typically include propertie(s) owned and their equity, disposable income (money left over after your pay your monthly necessities such as mortgage payments, utilities, food, car payments, etc.) The greater disposable income you have left over, usually the larger your monthly plan payment. A Chapter 13 Plan payment in terms of the total percentage of debt you must pay can vary from 10% to 100%. A Chapter 13 Trustee is appointed to your case. Their duties are to receive your monthly plan payments and distribute the pro-rata share to each of your creditors. Unlike a Chapter 7, a Chapter 13 Plan of repayment usually takes 3 to 5 years to complete. The Chapter 13 debtor, upon completing all Chapter 13 Plan payments, receives a discharge of any unpaid portion of debt not paid to creditors through the plan.
There are many reasons why a debtor may choose to file a Chapter 13 bankruptcy. One of the more typical situations that prompt the debtor to file for Chapter 13 is where the debtor has significant disposable income left after paying monthly necessities and therefore does not qualify for Chapter 7.
Another example might be where the debtor wishes to keep his home but has fallen behind on the mortgage payments. In a Chapter 7 the debtor would have to bring his mortgage payments current in order to keep his home from being foreclosed. In a Chapter 13 the debtor must pay his regular monthly mortgage payments timely following the filing of the case, but is afforded the opportunity and benefit of paying back any mortgage arrearages over 36 to 60 months through the Chapter 13 Plan. The same can apply to those who have fallen behind on their car payments and wish to keep them without fear of repossession.
Also, Chapter 13 may help some creditors discharge what they could not in a Chapter 7. Often debts such as criminal fines and debt incurred by fraud can be discharged in a Chapter 13.