A Chapter 13 can stop garnishments, bill collectors, levies, repossessions and foreclosures. Chapter 13 is a pay-back bankruptcy, usually lasting for a minimum of 36 months and a maximum of 60 months. In most Chapter 13 cases a percentage of unsecured debt is paid back and whatever unsecured debt remains after the payment plan is completed is wiped out.  A Chapter 13 is analogous in many ways to debt consolidation. Payments are made directly to the Chapter 13 Trustee, who then distributes the payment among your creditors.

In a Chapter 13 case interest and late penalties on most unsecured debt is stopped the instant a case is filed, and the amount owed to those unsecured creditors does not increase over the life of the plan. In most cases the Chapter 13 payment distributed to creditors is directly applied to the principal balance. In most cases the payment you would make in a Chapter 13 going to unsecured creditors would be far less then what you are paying unsecured creditors now.

A Chapter 13 is generally used for specific situations:

- If a client is behind on a mortgage and faces foreclosure and a sheriff sale. When this happens the arrears are repaid to the secured creditor over time with a payment the client can afford.

- If a client is behind on car payments and faces repossession.

- If a client has assets that are at risk in a Chapter 7 case. If the value of the at-risk assets are repaid through the Chapter 13 the assets will not be lost. See Which Chapter for Me? for an example.

- If a client has too much disposable income and does not qualify for a Chapter 7. Ronald J. Lundquist has represented many high income clients in Chapter 13 cases. In most cases there is a large monthly reduction in unsecured debt payments compared to paying the same debts outside of bankruptcy.

- If a client has debt that cannot be wiped out in a Chapter 7 case. Many clients are able to repay taxes, student loans and child support in payments that are affordable.   

The amount of the monthly Chapter 13 payment is determined by several factors. An analysis of income and expenses is performed. The value of exposed assets (if any) are taken into consideration. The nature of the debt is important in determining the monthly Chapter 13 payment.