Definition of Chapter 13

Chapter 13 of the US Bankruptcy Reform Act allows individuals to repay creditors over time, normally from future income. [1]

An arrangement under U.S. bankruptcy legislation, where the debtor undertakes to reorganise their finances under the supervision and approval of the courts. As part of the reorganisation, the debtor must comply with a plan to repay outstanding creditors within three to five years. In most cases, the repayment plan must provide a substantial payback to creditors - and it must, if needed, use 100 per cent of the debtor's income for repayment.

Chapter 13 bankruptcy differs from the outright foreclosure of an individual's or business's assets (seen in Chapter 7 bankruptcy) and the expensive restructuring of debts seen in Chapter 11 bankruptcy. Essentially, Chapter 13 allows a debtor that still has significant income to submit an orderly plan to the courts to pay back debts over a few years. [2]

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