Under this Chapter of the Bankruptcy Code (Title 11, United States Code, Section 101 et. seq.) the debtor proposes a plan of arrangement (also called a “reorganization plan”). There is a body of complex rules and laws that control what such a Plan “must” contain and what it “may” contain. A Chapter 13 Plan typically allows the debtor to keep a home in foreclosure.

Instead of losing the home to a rapid foreclosure sale, the bank is forced to wait for the delinquent payments to be made up by the debtor through a steady stream of small additional payments made over 3 years (while the regular monthly mortgage payments continue). In the same way a debt to the IRS can be paid back over an extended time in order to avoid wage garnishment or lien enforcement.

A Chapter 13 Plan must then use “excess income” (after reasonable living expenses) to pay whatever is left to general creditors. Sometimes these creditors receive a very small percentage of their claims through a Plan; and yet such a Plan can still be used to preserve assets. This is a very powerful tool to use when you don’t qualify for Chapter 7 or when you don’t have the cash to save your home or other assets immediately in hand.