Chapter 13 may be an option for people who do not pass the Chapter 7 resource test. Generally, Chapter 13 bankruptcy works so that people who have stable incomes make some payments on their debts, but don't have enough income to pay all the debts as they are currently structured. The person submits a payment plan to the court. A bankruptcy under chapter 13 is also called a wage earner plan.
It allows people with a regular income to develop a plan to pay all or part of their debts. Under this chapter, debtors propose a payment plan to pay installments to creditors within three to five years. If the debtor's current monthly income is lower than the applicable state median, the plan will run for three years, unless the court approves a longer period for good cause. Under no circumstances may a plan provide for payments over a period exceeding five years.
During this time, the law prohibits creditors from starting or continuing collection efforts.
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