Chapter 13

Chapter 13 is a provision in U.S. bankruptcy law under which people who earn a steady income can create a plan to pay back some or all of their debts. Debtors who use chapter 13 can propose a repayment schedule spanning 3-5 years, depending on their income level. Those who earn less than their state's applicable median income are given a 3-year chapter 13 plan unless they receive court permission for a longer interval. Those who earn more than their state's applicable median income are given a 5-year plan. No chapter 13 repayment plan can exceed five years. Once a payment plan is established, chapter 13 prohibits creditors from pursuing independent collection efforts. Unlike with a bankruptcy liquidation under Chapter 7, individuals who file for chapter 13 bankruptcy protection can stop foreclosure proceedings on their homes. Further, they can spread payments of debts other than mortgages over the span of the chapter 13 schedule and consolidate their obligations into a single payment to a chapter 13 trustee. Special provisions in chapter 13 protect third parties who may have co-signed with a debtor on a loan or other instrument. Individuals, including the self-employed, are eligible to file a chapter 13 bankruptcy provided their debts are below certain thresholds (e.g. unsecured debts < $360,475 and secured debts < $1,081,400 in 2010). Chapter 13 debt thresholds escalate with the consumer price index and are reviewed on a periodic basis. Corporations or partnerships, however, are not eligible to file under chapter 13. A chapter 13 banckruptcy is also know as a wage earner's plan.