Chapter 13 is that part (or chapter) of the Bankruptcy Code under which a person may repay all of a portion of his or her debts under the supervision and protection of the bankruptcy court.
The Bankruptcy Code is that portion of the federal laws that deal with bankruptcy. A person who files under chapter 13 is called a debtor. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtor's plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make payments to a person called the Chapter 13 Trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
Chapter 13 bankruptcy gives the debtor the opportunity to adjust his or her financial affairs without having to liquidate
current assets. Rather than being designed to pay debt out of those assets, a chapter 13 case usually involves payment of debts out of future income (although the debtor may decide on some repayment out of current assets). The debtor is allowed to keep and use all property, whether exempt or not, and to pay some or all debts according to a plan approved by the court. At the completion of this plan (or, in some cases, earlier) the debtor receives a discharge which, with several significant exceptions, is similar to the discharge received in a chapter 7 case.