How does a Chapter 13 work?
A Chapter 13 Bankruptcy is more specifically referred to as a "Adjustment Of Debts Of An Individual With Regular Income." A Chapter 13 bankruptcy, while different than a Chapter 7 bankruptcy, has the same net result: a discharge of most but not all of your unsecured debt.
An analysis of your income, assets and debts determines whether or not being in a Chapter 13 bankruptcy is more advantageous to your personal financial situation rather than pursuing a Chapter 7. It works like this:
After comparing your take-home pay to your allowed living expenses we determine that you have some left over "disposable income." A "Plan" is proposed to pay that disposable income into a pot over a 36-60 month period. The pot of money is managed by a local Trustee who is responsible for managing the money and paying over to your creditors following a priority scheme determined by law. Some of your creditors may be paid in full, creditors known as "priority" creditors because they are either secured creditors (past due payments on your house or car, etc.) or are legally defined "unsecured priority creditors" (past due child support or income taxes, etc.)
The proposed Plan is put before the Court for approval or "confirmation." So long as the Plan is feasible (we can demonstrate that you are able to fund the Plan) and no one objects to confirmation based on inequities in the Plan, and the Plan provides for at least 10 cents on the dollar being paid to your unsecured, non-priority creditors, it will be confirmed.
Monthly payments into the Plan are made directly to the Trustee either by you or preferably, by a wage deduction order directed to your employer. Once all of the payments have been received and all distributions by the Trustee have been made, the balance of your unsecured debt is "discharged," just like in a Chapter 7, and your case is closed.
