A reorganization bankruptcy for individuals with regular income: debts are repaid in part through a court-approved plan.
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Chapter 13 restructures rather than liquidates. An individual with regular income proposes a repayment plan, makes payments to a trustee who distributes them to creditors, and receives a discharge of qualifying remaining balances on completing the plan.
The reason people choose it over Chapter 7 is usually property. Chapter 13 provides a mechanism to cure mortgage arrears over time while keeping the home, and it does not require surrendering non-exempt property, because creditors are being paid through the plan instead. It is also the route available to people whose income is too high to qualify for Chapter 7.
The commitment is real: plans run for years, and the discharge generally arrives only on completion. A plan that cannot realistically be sustained is a common failure mode, and cases that fall out of plan can end without the relief sought.
Two features have no Chapter 7 counterpart. The co-debtor stay protects someone who co-signed a consumer debt with the debtor, such as a relative on a car loan, from collection while the case is open, unless the court lifts it (11 U.S.C. § 1301). And the plan has minimum payment tests: priority claims, such as most recent tax debts and domestic support obligations, generally have to be paid in full over the life of the plan (§ 1322(a)(2)). Unsecured creditors must receive at least what they would have received in a Chapter 7 liquidation (§ 1325(a)(4)). If the trustee or an unsecured creditor objects, the plan must also commit all of the debtor's projected disposable income for the plan period (§ 1325(b)(1)).
Chapter 13 plans are drafted documents that must satisfy statutory tests and be confirmed by the court, and the choice between Chapter 7 and Chapter 13 is a genuine analysis rather than a preference. This is one of the least practical areas to approach without advice.
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