• Learn what happens to your money in a Chapter 13 bankruptcy proceeding.Pennies on the Dollar - one dollar bill with pennies. image by Andy Dean from Fotolia.com
  
  Chapter 13 bankruptcy is a legal remedy available to debtors who have an income source from which to repay their debts, either in whole or in part. The result of a Chapter 13 bankruptcy proceeding is the creation of an all-encompassing debt repayment plan. Under the repayment plan, the debtor makes a single monthly payment to a trustee appointed by the bankruptcy court. The trustee then uses that money to pay the debtor's creditors.
  
  

Counseling

• The first procedural requirement for a Chapter 13 bankruptcy is participation in an approved credit counseling course. Credit counseling is basically a personal finance 101 class where a credit counselor will work with you to help you learn how to better manage your finances. An optional part of credit counseling includes the preparation of a preliminary debt repayment plan that you can use as the basis for your Chapter 13 repayment plan.
  
  

Voluntary Petition

• When you complete your credit counseling course, the counseling agency will give you a certificate of completion, and that certificate entitles you to file a Voluntary Petition for Chapter 13 bankruptcy. The Voluntary Petition is a formal request that you file with the U.S. District Bankruptcy Court located in your geographic region. When you submit a Voluntary Petition, you must include a financial statement, tax returns, and a detailed listing of all of your existing debts.
  
  

Chapter 13 Plan

• After filing your Voluntary Petition, you will need to prepare a formal repayment plan that outlines how you will pay off your debts. The bankruptcy court will review your proposed plan and usually will approve it. Sometimes, however, the court will require modifications to the proposed plan before approving it. Additionally, the court will allow your creditors to provide writtten comments on your proposed plan. Since many repayment plans call for payment of debts in a reduced amount, or at a lower interest rate, some creditors may object to the plan. Ultimately, however, the court has the final say; once the court approves a plan, creditors cannot legally dispute it.