Chapter 13 bankruptcy is known as a reorganization bankruptcy, described in the Bankruptcy Code as “Adjustment of Debts of an Individual with Regular Income”. The debtor keeps the property but must pay their debts according to a payment plan over a 3-to 5-year period. The time period is based on a comparison between your average monthly income for the six-month period prior to the filing date of your bankruptcy petition and the median income for your state. The median income for your state is published on the U.S. Trustee’s website. (see Resources).
The repayment plan distinguishes a Chapter 13 from a Chapter 7, because, under a Chapter 7, the debtor’s debts are wiped out but they must give up some property to the Bankruptcy Trustee, who will use the property to pay debts.
In order to qualify for Chapter 13 bankruptcy reorganization, the debtor must prove to the court that they can finance the plan. They must have enough income to meet the payment plan but not so much debt that repayment might not be possible. If the debtor’s plan is not confirmed, the debtor may file for Chapter 7 bankruptcy.