What is chapter 13 bankruptcy?

Chapter 13 bankruptcy is a process in which the court calculates a debtor's disposable income and uses the amount to create a payment plan toward debts. A Chapter 13 debt payment plan lasts three to five years.

The court decides how much each creditor receives each month by determining the amount of income the debtor has available after he pays his qualifying expenses each month. That amount is then divided among eligible debts, with some debts having priority over other debts. During the payment plan, the debtor is not allowed to take on any significant debt without approval from the court. At the end of the payment plan, all remaining dischargeable debts are discharged.