Chapter 13 is the "reorganization" bankruptcy for individuals with regular income. Instead of liquidating assets, you propose a repayment plan to the court. You pay what you can reasonably afford over 3 to 5 years, and at the end, remaining qualifying debts are discharged.
Chapter 13 is particularly powerful if you're behind on your mortgage, facing car repossession, or have debts that Chapter 7 can't discharge (like certain tax obligations). It lets you catch up on arrears while keeping everything you own.
Who Qualifies for Chapter 13?
You qualify for Chapter 13 if you:
- Have regular income (employed, self-employed, pension, Social Security — any steady source)
- Have unsecured debts under $2,750,000 and secured debts under $2,750,000 (as of 2024 — these limits adjust periodically)
- Are current on tax filings for the last 4 years
- Have not had a bankruptcy dismissed in the last 180 days for certain reasons
- Complete the required credit counseling course before filing
There is NO Means Test for Chapter 13
Anyone with regular income can file regardless of how much they earn. This makes Chapter 13 the primary option for higher-income filers who don't qualify for Chapter 7.
The Power Moves of Chapter 13
Mortgage Cure (Stop Foreclosure)
If you're behind on your mortgage, Chapter 13 lets you catch up on missed payments over the life of the plan while resuming regular monthly payments going forward. The bank cannot foreclose as long as you stay in the plan.
Cramdown (Reduce Car Loans)
If you've owned your car for more than 910 days and owe more than it's worth, Chapter 13 lets you "cram down" the loan to the car's actual value. Owe $18,000 on a car worth $11,000? You might only pay $11,000 plus interest.
Strip Junior Liens
If your home is worth less than your first mortgage, Chapter 13 can strip off (eliminate) second mortgages or HELOCs entirely, converting them to unsecured debt that may be partially or fully discharged.
Tax Debt Repayment
Recent tax debts that survive Chapter 7 can be repaid through a Chapter 13 plan, often interest-free, over 3-5 years.
How the Repayment Plan Works
Your attorney proposes a plan based on your income, expenses, and debts. The plan must:
- Pay all "priority debts" in full (recent taxes, child support arrears, etc.)
- Pay secured creditors at least the value of the collateral (your car's actual value, not the loan balance)
- Pay unsecured creditors at least as much as they'd receive in a Chapter 7 liquidation
- Devote all "disposable income" to the plan
Plan length: 3 years if your income is below the state median; 5 years if above.
How Your Monthly Payment Is Calculated
Your Chapter 13 payment is based on a formula, not an arbitrary amount. Here's how it works:
- Start with your gross monthly income (all sources)
- Subtract allowable expenses — IRS standards for living expenses, actual mortgage/rent, car payments, insurance, medical costs, childcare, and other necessary expenses
- The remainder is your "disposable income" — this is your plan payment
The payment must also be enough to cover:
- 100% of priority debts (taxes, child support arrears)
- The value of secured collateral (car value, not loan balance)
- Mortgage arrears spread over the plan period
- Trustee's administrative fee (typically 5-10% of plan payments)
Example Payment Scenario
A family earning $5,500/month with $4,200 in allowed expenses would have $1,300/month in disposable income. Over a 5-year plan, that's $78,000 going to creditors. If they owe $120,000 in total unsecured debt, unsecured creditors might receive about 40-50 cents on the dollar, and the rest is discharged at the end of the plan.
What Debts Are Covered?
Chapter 13 handles different types of debt in different ways:
Priority Debts (Paid in Full)
- Recent income taxes (generally last 3 tax years)
- Child support and alimony arrears
- Wages owed to employees
Secured Debts (Paid Based on Collateral Value)
- Mortgage arrears (spread over the plan while you resume regular payments)
- Car loans (may be crammed down to vehicle value)
- Other secured loans
Unsecured Debts (Paid Partially or Not at All)
- Credit cards
- Medical bills
- Personal loans
- Remaining balance after cramdowns
- Stripped second mortgages/HELOCs
Unsecured creditors receive whatever is left after priority and secured claims are paid. In many plans, unsecured creditors receive as little as 0-10% of what they're owed. The rest is discharged when you complete the plan.
Advantages of Chapter 13 Over Chapter 7
Save Your Home from Foreclosure
Chapter 7 only pauses foreclosure temporarily. Chapter 13 lets you cure mortgage arrears over 3-5 years while keeping your home — as long as you make plan payments and resume regular mortgage payments.
No Means Test Required
High earners who can't pass the Chapter 7 means test can always file Chapter 13. There's no income ceiling.
Protect Co-Signers
The Chapter 13 "co-debtor stay" prevents creditors from pursuing co-signers on consumer debts while you're in the plan. Chapter 7 doesn't offer this protection.
Shorter Credit Report Impact
Chapter 13 stays on your credit report for 7 years from the filing date, compared to 10 years for Chapter 7.
Keep Non-Exempt Property
If you have assets that exceed exemption limits (valuable collections, investment property, etc.), Chapter 13 lets you keep them as long as unsecured creditors receive at least that value through the plan.
The Chapter 13 Timeline
Before Filing
Complete credit counseling course. Gather financial documents. Consult with attorney.
Filing Day
Petition filed with proposed repayment plan. Automatic stay takes effect immediately — all collections, foreclosures, and garnishments stop.
30 Days After Filing
First plan payment due to the Chapter 13 trustee. Payments are typically made via payroll deduction.
30-45 Days After Filing
341 Meeting of Creditors — similar to Chapter 7, a brief meeting with the trustee.
Within 45 Days of 341 Meeting
Plan confirmation hearing. The judge reviews and approves your repayment plan.
3-5 Years
Make monthly payments according to the confirmed plan. The trustee distributes funds to creditors.
Plan Completion
Complete debtor education course. Receive discharge of remaining qualifying debts. You're done!
How Much Does Chapter 13 Cost?
| Court filing fee | $313 |
| Credit counseling course | ~$25 |
| Debtor education course | ~$25 |
| Attorney fees |
$2,500–$6,000
Often paid through the plan itself
|
| Total Typical Range | $2,900–$6,400 |
A major advantage of Chapter 13: attorney fees are typically paid through the plan, meaning you don't need to pay the full amount upfront. Many attorneys require only a small retainer to get started.
Chapter 7 vs Chapter 13 — Quick Comparison
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Primary benefit | Fast elimination of unsecured debt | Keep assets, catch up on secured debts |
| Timeline | 3-6 months | 3-5 years |
| Eligibility | Must pass Means Test | Regular income, debt limits apply |
| Foreclosure/Repossession | Stops temporarily, doesn't fix arrears | Stops permanently if plan payments made |
| Credit report | 10 years | 7 years |
| Attorney fees | $1,000-$2,500 (paid upfront) | $2,500-$6,000 (paid through plan) |
What Happens If You Can't Make Plan Payments?
Life happens during a 3-5 year plan. If your financial situation changes, you have options:
- Modify the plan: If your income drops, your attorney can request a plan modification to lower payments
- Hardship discharge: In extreme circumstances (serious illness, disability), the court may grant an early discharge even if you haven't completed all payments
- Convert to Chapter 7: If you qualify, you can convert your case to Chapter 7 to get a faster discharge
- Voluntary dismissal: You can dismiss the case, though you'd lose the protection of the automatic stay
Save Your Home. Stop the Calls.
Chapter 13 could save your home and put you back in control. Talk to a bankruptcy attorney in your area — free, no obligation.
Get Your Free ConsultationFrequently Asked Questions
Can I keep my credit cards during Chapter 13?
Existing credit card accounts will be closed as part of the filing. During the plan, you generally cannot take on new debt without court permission. However, emergencies (like a car breaking down) can sometimes be approved.
What if I get a raise during the plan?
If your income increases significantly, the trustee or creditors may request a plan modification to increase your payments. However, modest raises that go toward reasonable living expense increases typically don't trigger changes.
Can I sell my house during Chapter 13?
Yes, but you need court permission. Any equity above your exemption would typically go to pay creditors through the plan. Your attorney can guide you through the process.
What percentage of Chapter 13 plans succeed?
Historically, about 33-40% of Chapter 13 cases result in a completed plan and discharge. The completion rate is higher for filers who work with experienced attorneys and have stable income. Even when cases are dismissed, filers often benefit from the months or years of protection the automatic stay provided.
Does Chapter 13 help with student loans?
Chapter 13 doesn't discharge student loans, but it can help by putting student loan payments into the plan and protecting you from collections during the 3-5 year period. Some filers use this time to pursue income-driven repayment plans or Public Service Loan Forgiveness.