HOW DOES CHAPTER 13 NORMALLY WORK? (LONGER VERSION)
Chapter 13 is part of federal law that protects a person while they attempt to repay some or all of their debts over a period of time.  A person who files under Chapter 13 is called a “debtor.” Generally, a debtor does NOT have to pay all his/her debts in Chapter 13; debtors generally just have to do the best they can base on their assets, income, and reasonable expenses. In a Chapter 13 case, the debtor submits to the Court a “Plan” for paying some or all of the debtor’s debts over a period of three years to five years. The debtor’s payments are generally based on the debtor’s income and reasonable expenses. Once the payment is determined, the debtor makes the monthly payment for the length of the plan. During the period of the plan, debtors continue to pay their own living expenses. During the plan period, the plan payments are paid to a person called the “Chapter 13 Trustee.” The Trustee collects the money, takes a small fee, and distributes the balance to creditors as indicated in the approved Plan. In our jurisdiction, we are blessed with a Chapter 13 Trustee that is very reasonable and easy to work with. The Chapter 13 Plan is complete when the debtor makes all the payments required under the plan. When that happens, with only a few exceptions, the debtor is no longer personally obligated (or is “discharged”) on any balance left on any debts not paid in full through the plan. Generally, obtaining a discharge is one of the major reasons why people file for Chapter 13 relief. A Discharge Order is an actual Order of the Bankruptcy Court that, when entered, releases a debtor from the personal obligation to repay the debtor’s discharged debts. The Discharge Order also orders creditors to not attempt to collect on a debt that has been discharged.
It’s also worth noting that a Chapter 13 bankruptcy can be filed even when a debtor is not entitled to a discharge. In that case, Chapter 13 can help the debtor manage and pay certain debts. For example, Chapter 13 can still be filed to help a debtor get caught up on mortgage arrears and stop foreclosure, and pay non-dischargeable debts such as certain taxes.