Chapter 13 bankruptcy
provides consumers with a way to consolidate debt under federal law and repay creditors all or a portion of what is owed over time. The idea behind chapter 13 is that the consumer makes sufficient income to pay all current living expenses (rent, food, car, utilities, etc.), but not enough to pay off all debts in full or comply with creditor's demands. In chapter 13, living expenses are paid first, then whatever is left over goes into the bankruptcy plan. The plan is not based on what you owe (in most cases), it is based on your ability to repay creditors. The calculation of your plan payments involves many variables, but most importantly, it is based on your income and expenses. Whatever is left at the end of the month goes into the plan, even if it only pays creditors pennies on the dollar. Chapter 13 can be particularly useful for consumers with assets over the exemption amounts, defaulted mortgages or other secured debts.