Chapter 13 is the second most popular form of bankruptcy in America. In 2009 there were just over 370,000 cases filed, which is a little under half that of chapter 7. Chapter 13 is all about reorganization. It allows individuals to go through a financial reorganization supervised by the federal bankruptcy court. Chapter 13 is written to assist debtors that receive income rehabilitation via a court approved plan. This is not an immediate fix like in Chapter 7, but a long term plan to alleviate debt.

In order to file for chapter 13, you need to have sufficient disposable income to fund a realistic plan or reorganization. Also, as of April 2010, you must have unsecured debts of less than $360,475.00 and secured debts of less than $1,081,400.00. The debtor proposes their plan to pay his creditors over a 3 to 5 year period. The plan lays out all of the payments and when they will occur. In most cases the debtor gets to keep their property, and the creditors receive less money than they are owed.

After filing for chapter 13, a record does stay on the debtor’s credit report for 10 years. During the case they may not receive additional credit without approval from the bankruptcy court. While these disadvantages to filing for chapter 13 may seem daunting, there are some key advantages when filing chapter 13.

Debts that cannot be discharged in a chapter 7 case may be eligible to be discharged. Foreclosures may be stopped, or at least halted for the length of the case. For non-primary properties where creditors are charging too much, the debtor may be eligible for a cram down modification of debt. This involves reducing the principle amount, a change in the interest rate, or a change of other terms.