A Chapter 13 bankruptcy adjusts the debts of an individual with regular income. Chapter 13 is used to reorganize and eliminate debts for individuals and sole proprietorship businesses. You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors.

In a Chapter 13, a payment plan is submitted to the court through which you will pay all or a percentage of your debts over a 3 to 5 year period, based on your excess income. The court must approve your payment plan and your budget. Generally, plan payments will be determined through a complex analysis to calculate what your "disposable" income is per month.

A trustee will be appointed who will collect the payments from you, pay your creditors, and make sure you live up to the terms of your payment plan. Many times payments are collected through a wage order that requires your employer to forward funds directly from your paycheck to the bankruptcy trustee.

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