Bankruptcy – Chapter 13 Definition

Chapter 13 Bankruptcy is named after "chapter 13" of "title 11" of the US Code, known as the Bankruptcy Code. Chapter 13 allows individuals to undergo a financial reorganization that is supervised, and enforced, by a federal court. The goal of Chapter 13 is to allow debtors to be financially rehabilitated by fulfilling a court-ordered debt repayment plan.

In Chapter 13, individuals may retain much or all of their personal property but are expected to pay off much of their debt, or at least as much of their debt as is feasible. In order to qualify for Chapter 13 filing, an individual must have income exceeding basic financial obligations and cannot have aggregated debt exceeding a certain threshold. The court-ordered repayment plan is typically executed over a three to five year period, during which time the individual is prohibited from obtaining additional credit.

Creditors much prefer a Chapter 13 to a Chapter 7 because they can recoup at least some of the ebt owed to them. In theory, a Chapter 13 is less damaging to an individual’s credit rating than a Chapter 7. Chapter 13 demonstrates a good-faith effort to repay at least some of the debt. But, in practice there is little difference between the two forms of bankruptcy.