Chapter 13 or “debtor reorganization" is governed by Title 11 of the United States Code. The choice to file between Chapter 13 and Chapter 7 is largely determined by the individual’s financial circumstances and ability to pay creditors over an extended period of time.

Under Chapter 13 bankruptcy an individual debtor proposes to pay his/her debts over a three or five year period by submitting a detailed financial plan to the bankruptcy court. Unlike Chapter 7, the debtor does not have to hand over any property to the court. The “payment plan” outlines the financial transactions to occur between the debtor and creditors over the life of the plan and the debtor must prove that they can continue to make the payments for the extended period of time. The plan cannot be objected to by any creditors and must either repay all creditors in full or commit all of the debtor’s disposable income to the plan throughout the lifetime of the plan. During the repayment period creditors can only collect on the debts approved by the court and cannot foreclose on any property owned by the debtor, contained in the plan, so long as the plan is in existence.

Once the debtor’s repayment plan has been completed, all remaining debts are discharged by the bankruptcy court. Chapter 13 is not available to everyone as eligibility depends on a number of independent circumstances.