Under the Chapter 13, formerly known as a "wage earner plan," the purpose is to attempt repayment of some of a person's debts, rather than simply discharging them.  Under present law, a debtor must have regular income from some source, and must make monthly payments to a Bankruptcy Trustee for a period of three years to be eligible for this type of bankruptcy.  Any creditors to be paid, including secured creditors such as on car payments or other secured loans, are included in the one payment that is made to the Bankruptcy Trustee.  The only exceptions to this are home mortgages on a person's residence, which continue to be paid directly to the mortgage holder, and child support or alimony obligations, which are paid directly to the recipient.  The considerations in determining the amount of the Chapter 13 payment include the value of any secured property, any mortgage payment arrearages, and any nondischargeable debts, such as tax obligations.  In order to complete a Chapter 13 and to keep secured property, a person must pay at least the value of that property back to the secured creditor.  For example, if the debtor has a car loan balance of $10,000.00, with the car being worth $8,000.00, then the requirement under Chapter 13 is that the debtor pay at least $8,000.00 to the secured creditor in order to keep that automobile.  A debtor has up to five years to pay creditors under Chapter 13.  If a creditor does not agree with the value placed on the property, the Bankruptcy Judge decides what the property is worth.

In addition, there are other significant differences between the Chapter 13 and Chapter 7 bankruptcy.  Under the Chapter 13, some debts can be discharged or eliminated, which might not be dischargeable in a Chapter 7.  A Chapter 13 can also act to reduce payments on debts in three ways:
 

1. Interest on any unsecured claim, such as credit cards, stops running, and the debtor simply pays back the principal due and owing to that creditor.
    

2. Most consumer debts have a repayment cycle of one to three years, but under the Chapter 13, the debtor may take up to five years to pay back any obligation.  This type of extension would reduce the payment owed to any creditor.
    

3. The debtor can, in certain circumstances, pay less than the total amount of the debt due and owing under certain rules established by the Bankruptcy Court, which will also reduce the amount which must be paid.