Chapter 13

• When you file for Chapter 13, the court does not actually erase your debts, but gives you an opportunity to make monthly payments with lower interest rates to your creditors and eventually pay back your debts. To do so, you must create a payment plan composed of three to five years of making consistent, regular, monthly payments to your creditors. If the court approves your case, you must start making these payments. Generally, you pay a trustee, who distributes your payments among your creditors. Once you have made all of the payments you were required to do in the time designated, the court will give you the discharge of debts paid.
  
  

Chapter 13 and New Debts

• When you file for Chapter 13, you tell the court that you will pay your creditors in the period of time the court has given you. You work together with the trustee for all the time you are in the bankruptcy process and you live on a reduced budget until you have made all the payments agreed between you and the court. You cannot incur new debts without first asking the trustee designated to your case, since this might impede your ability to continue making payments. However, with the trustee's authorization, you may incur necessary debts that do not excessively compromise your ability to make payments on your current debts.
  
  

How Chapter 13 Works

• Once the court approves your case, it will require you to start making the payments. This demands that you live on a tight budget for a period of time, enough to pay the amounts you are required to pay every month. The trustee will receive your payments and pay your creditors. The best way of doing so is through payroll deductions. This will help you to not miss any payments, since, if you do so, your case might be dismissed, in which case your debts remain the same as before you filed, or the court will convert your case to a Chapter 7, in which case it will erase your debts.
  
  

Chapter 13 Eligibility

• Even though you might want to file for Chapter 13 because you desire to pay your creditors back, you must qualify to be able to file. If you do not qualify, your only option might be to file for Chapter 7. As of 2011, if your unsecured debts are higher than $360,475 and your secured debts higher than $1,081,400, you cannot file for Chapter 13. You must also receive credit counseling with an approved agency. (This must be done within 180 days before filing your petition.)