You want to keep the vapor barrier facing the living space side of the wall. This will be the warm side of the wall in cold weather. Warm air (containing more moisture than cool air) should be kept from infiltrating the insulation where the moisture will condense into water when it meets the cool air. The best method is to forget the Kraft paper face and go with R-13 friction fit insulation (No paper face). Leave an air space against the concrete wall to keep any moisture from wicking into the insulation. Then cover the wall and insulation with 6-mil polyethylene plastic. This will create a much tighter continuous vapor barrier.
I understand I should leave 1-2" between the new wall frame and the foundation wall, and that I should stuff R-13 insulation into the frame. But I'm not sure where to put the plastic sheeting for the vapor barrier. Does this barrier attach:
1) Directly to the foundation wall, or--
2) to the back of the wall frame, or--
3) to the front of the wall frame
I'm assuming the correct answer is #2, so that in order you would have drywall attached to the frame, insulation between the frame, then plastic sheeting holding in the insulation and facing the foundation wall, then lastly the foundation wall. Is this correct?