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Chapter 13 deals with the U.S. bankruptcy proceeding in which the debtor wishes to pay back most of the outstanding amounts to his creditors in the future and agrees to allow a court approved and supervised restructuring of his or her finances. The time allowed for the repayment of the debts is three to five years under this plan. The amount paid back should also be almost equal to what the creditors would  receive under other forms of bankruptcy. For this, the debtor must utilise almost all his income received during the period allowed for repayment.

Chapter 13 bankruptcy differs the Chapter 7 bankruptcy in that there is no outright foreclosure of the assets or the residence of the debtor or the type of expensive and complicated reorganization of the debts as observed in the Chapter 11 bankruptcy. The Chapter 13 is more advantageous to the debtor because, the assets of the individual or business are not compromised immediately but are used over time to repay the debt in a systematically arranged manner.

Many debtors choose Chapter 13 bankruptcy rather than the Chapter 7 one if they think that the right thing to do is to repay the debt, but they feel that they need the protection of the courts to do it over the allotted period. Also, missed payments on loans, mortgages and purchases can be made up only through filing this type of bankruptcy.

There are also others who are eligible to file the Chapter 13 bankruptcy, such as those who require help to repay the debts at the present time, but may opt for the Chapter 7 plan later if they are not able to control incurring new debts. In the same way, a family farmer wishing to repay the debts that are not related to farming and so ineligible for the Chapter 12 bankruptcy, or if the debtor has assets that are valuable and non-exempt property that may be foreclosed under the Chapter 7 system, may use the Chapter 13 plan as it is more advantageous to them. In cases where the Chapter 7 bankruptcy has already been filed once, the debtor cannot use that again for eight years and could instead opt for the Chapter 13 bankruptcy.

But there are certain conditions for filing Chapter 13: a debtor can file this only after a gap of four years from his discharge under the Chapters 7, 11 or 12, or after two years after the discharge under Chapter 13. If the debtor has a co-debtor and the debt incurred was personal, Chapter 13 would protect the co-debtor from the creditors’ harassment. Instead, the creditors will have to wait for the repayments according to the court supervised plans. In the case of tax debts that are mainly composed of federal taxes, what happens the tax debts may regulate the type of bankruptcy that is best for the debtor.

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