- A Chapter 13 bankruptcy filing is known as a "reorganization" bankruptcy, allowing an individual to organize finances in such a way that debts are repaid within an agreed-upon time period. As with other bankruptcy types, the court appoints a trustee who, in Chapter 13, negotiates with the debtor and his creditors to establish a payment schedule agreeable to all parties. Some debts may be discharged or reduced by the court, lowering the total amount that must be paid.
- To qualify for Chapter 13, an individual must have under $336,900 of secured debt and under $1,010,650 of unsecured debt. The debtor must have a steady income that brings in more money than necessary to meet his living expenses and must be willing to commit to a payment plan if he wishes to keep the bankruptcy protections offered by Chapter 13 filings.
- The individual filing for Chapter 13 bankruptcy protection works out a court-approved repayment plan, allowing him to pay back some or all of his debts over a set period of time. The court reviews both the plan and the debtor's income to make sure that the payment amount is reasonable so that the individual will pay the required amount in full each month until his debts have been cleared. Chapter 13 repayment plans can range from six months to five years, with the average repayment plan set at three or five years.
- Once the amount specified by the court has been successfully paid, the Chapter 13 bankruptcy filing is discharged by the court. At this point, any debts that the individual included in the Chapter 13 filing have either been repaid in full, repaid at a reduced amount set by the court or discharged by the court completely. The Chapter 13 bankruptcy filing remains on the individual's credit report for 10 years after discharge, potentially having a serious effect on his credit during that time.