Chapter 13 is often called the wage earner bankruptcy. Chapter 13 is designed for people with regular income who desire to pay their debts, but are currently unable to do so. Any person, even those who are self-employed or who own an unincorporated business, are eligible to file for Chapter 13 bankruptcy, so long as you come within the debt limits imposed by Chapter 13.

The concept behind a Chapter 13 bankruptcy is that you (and your spouse, if any) make sufficient income to pay all of your current living expenses (e.g., rent, food, utilities, transportation, clothes, etc.) and have some money left over to apply to your debts.  You will submit a Chapter 13 plan in which you set out a budget detailing your take-home pay and monthly living expenses. You pay the excess income to the bankruptcy trustee who then pays the money to your creditors.  The plan lasts for at least 36 months unless your debts are paid in full in a shorter time.  The payment period may be extended beyond 36 months (but not over 60 months), if you need the extra months to pay enough on your debts to have the plan approved by the Court.  At the end of the Chapter 13 plan, any amounts still owing on your unsecured debts are forgiven.  In certain cases, Chapter 13 allows us to lower the amount of your loans or give you a lower interest rate on certain loans.  If you have a secured loan like a mortgage, deed of trust, or car loan that you are behind on, Chapter 13 allows you to catch up the amount you are behind over time. 

Chapter 13 is usually preferable for a person who:

- wishes to save an asset, typically a house or car, from foreclosure, by curing the defaults over time,

- wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time,

- has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case,

- is not eligible for a discharge under chapter 7,

- has one or more substantial debts that are dischargeable under chapter 13 but not under chapter 7, or

- has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.