How it works

• In a chapter 13 bankruptcy, your debt payments are restructured into a single monthly payment that is made directly to the court. The court then disburses the funds to your creditors in accordance with the agreed-upon settlement plan.
  
  

Payoff Times

• It can take from three to five years to repay your debts under a Chapter 13 repayment plan. Your income and amount of debt are taken into consideration in developing the plan. Plans will typically be for three years unless a longer period is approved by the courts "for cause."
  
  

Discharge

• Discharge from a Chapter 13 is granted when the payment plan has been completed satisfactorily. A Chapter 13 discharge date is not the date of the plan's acceptance by the court. This is a common misconception.
  
  

Credit Reports and Chapter 13

• A bankruptcy remains on your credit report for seven years after the discharge date. Again, this is commonly mistaken for the filing date. In the case of a Chapter 13, if you have a five-year payoff to receive your discharge and the bankruptcy remains on your credit report for another seven years, the debt and bankruptcy will continue to affect your credit rating for the next 12 years.
  
  

Myth: Chapter 13 looks better than Chapter 7 on your credit report

• Another common misconception about Chapter 13 bankruptcy is that it affects your credit less than a Chapter 7. In a way, because of the longer time period, it could be argued that the opposite is true. In the eyes of creditors, bankruptcy is bankruptcy, and they look no more favorably upon one than the other.
  
  If you decide to use Chapter 13, do it for the right reasons. The biggest advantage to Chapter 13 is that it can allow you to keep property, including your home, that you might have lost in a Chapter 7. If you are considering these options, consult legal counsel if you are unsure which option is best for you.