Under Chapter 13 bankruptcy, you renegotiate your debt with your creditors. You create a repayment plan with the help of the U.S. trustee that combines all of your debts into one monthly payment. The amount of the payment is based on your ability to pay.

No Liquidation

Unlike in Chapter 7, you are not forced to liquidate your assets in a Chapter 13 bankruptcy. Instead, your payments in a Chapter 13 repayment plan all come from your disposable monthly income.

Cramming Down

Chapter 13 allows you to cram down your debts on which you are "upside down." This means you can surrender or sell property and allow the current value of the property to satisfy the debt in full, even if you owed more than the property was worth.

Length of Payment Plan

Another benefit of Chapter 13 is that it allows you more time to pay off your debts than you might have had otherwise. Payment plans are either three or five years.

Manageable Payments

Many debtors are driven into bankruptcy by monthly minimum payments that exceed their ability to pay. In Chapter 13, your monthly payments are determined by your disposable income, after rent and other necessary expenses.

Discharge of Debt

Under Chapter 13, you are required to pay at least as much as the value of your nonexempt property (the amount you would pay in Chapter 7). But, as long as you pay more than this amount, you can have up to 75 percent of your debts forgiven if you are unable to pay out of your monthly income.

Source:

U.S. Courts: The Chapter 13 Plan and Confirmation Hearing

Nolo: Your Obligations Under a Chapter 13 Bankruptcy Plan

Legal Helpers: The "Cram Down" Benefit of a Chapter 13 Bankruptcy

More Information:

Benefits of Chapter 13

What Is a Reaffirmation Agreement?