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Chapter 13 A U.S. bankruptcy proceeding in which the debtor undertakes a reorganization of his or her finances under the supervision and approval of the courts. The reorganization must involve the debtor submitting and following through with a plan to repay outstanding creditors within three to five years. In most circumstances, the repayment plan must provide a substantial payback to creditors - at least equal to what they would receive under other forms of bankruptcy - and it must, if needed, use 100% of the debtor's income for repayment. Chapter 13 bankruptcy differs from the outright foreclosure of an individual's or business's assets (seen in Chapter 7 bankruptcy) and the expensive and complicated restructuring of debts seen in Chapter 11 bankruptcy. Essentially, Chapter 13 allows a debt-laden person or sole proprietorship that still has significant income to submit an orderly plan to the courts to pay back debts over a few years. Doing so can provide advantages to the debtor not found in other forms of bankruptcy, such as preventing foreclosure of a residence. In 2003, U.S. citizens filed for Chapter 13 bankruptcy almost 500,000 times, making it the second-most popular form of bankruptcy behind Chapter 7.
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