Chapter 13 bankruptcy is a reorganization for individuals with regular income. Instead of selling property, the debtor proposes a plan to repay some or all debts over three to five years while keeping assets such as a home and a car. It is often the choice for people who earn too much to pass the Chapter 7 means test, or who are behind on a mortgage and want to catch up without losing the house.
How a Chapter 13 Case Works
A case starts with a petition in the United States Bankruptcy Court. The filing triggers an automatic stay under 11 U.S.C. § 362, which halts most collection activity, including foreclosure and repossession. A standing trustee is assigned to administer the case, collect the debtor's monthly plan payments, and distribute the money to creditors according to the plan. Unlike Chapter 7, there is no liquidation of nonexempt assets. The debtor keeps property and pays creditors from future income.
Who Qualifies
Only individuals with regular income may file, and the law caps how much debt a filer may carry. Under 11 U.S.C. § 109(e), there are ceilings on secured and unsecured debt that are adjusted periodically. A filer whose debts exceed the limits may not be eligible for Chapter 13. Self-employed people and sole proprietors can qualify, but corporations and partnerships cannot. The current limits are published at uscourts.gov, and they change over time, so confirm the figures before relying on them.
The Repayment Plan
The plan is the heart of a Chapter 13 case. It must be filed within a set time after the petition, and the court must confirm it. A plan generally lasts three years, or up to five years if the debtor's income is above the state median. The debtor must commit all projected disposable income to the plan, and unsecured creditors must receive at least what they would have received in a Chapter 7 liquidation. Priority debts, such as recent taxes and domestic support obligations, must be paid in full. Secured debts may be handled by continuing regular payments, curing arrears, or in some cases modifying the loan.
What the Plan Can Do
- Cure a mortgage default and reinstate the loan while keeping the home.
- Reschedule secured debts and, for certain loans, reduce the claim to the value of the collateral.
- Strip off a junior lien that is wholly unsecured.
- Pay priority debts over time instead of in a single lump sum.
- Protect a co-signer through the co-debtor stay in 11 U.S.C. § 1301.
Discharge and Its Limits
After the debtor completes all plan payments and any required debtor education, the court grants a discharge under 11 U.S.C. § 1328. The discharge covers the debts provided for by the plan, with exceptions similar to Chapter 7. Most taxes, student loans, domestic support obligations, and fraud claims are not discharged. A hardship discharge may be available in limited cases before the plan is complete if the debtor cannot finish because of circumstances beyond their control and creditors have received at least what they would have received in a Chapter 7 case.
Chapter 13 Compared With Chapter 7
| Feature | Chapter 13 | Chapter 7 |
|---|---|---|
| Purpose | Reorganization through a payment plan | Liquidation of nonexempt assets |
| Income | Requires regular income | No regular income required, but the means test applies |
| Property | Debtor usually keeps property | Nonexempt assets may be sold |
| Duration | Three to five years | Usually a few months |
| Typical use | Save a home, repay arrears, handle debt above the means test | Eliminate mostly unsecured debt with few assets to protect |
Plan Payments and the Trustee
Once the court confirms the plan, the debtor makes a single monthly payment to the trustee rather than paying each creditor separately. The trustee deducts a fee set by law and distributes the rest according to the plan. Payments usually begin within about thirty days after the petition is filed, even before confirmation, so the debtor should budget for them right away. The amount is based on projected disposable income, which is income above the amounts reasonably necessary for the debtor's living expenses and dependents.
Modification, Conversion, and Dismissal
A plan is not frozen in place. If income or expenses change, the debtor may ask the court to modify the plan, and a trustee may also seek modification. If the debtor cannot continue, the case may be converted to Chapter 7 or dismissed. Dismissal ends the automatic stay and returns the parties to their prior positions, though some payments already made may not be refunded. Conversion to Chapter 7 brings the means test back into play and can put nonexempt property at risk. Because these choices carry different consequences, the decision should be made with advice rather than by missing payments.
Before You File
Chapter 13 also requires a credit counseling course from an approved provider within 180 days before filing, under 11 U.S.C. § 109(h), and a debtor education course before discharge. Missing either requirement can delay or end the case. Gathering pay stubs, tax returns, and a complete list of debts before filing helps the plan get off to a correct start.
Filing After a Prior Case
Timing rules limit repeat filings. A debtor generally cannot receive a Chapter 13 discharge if a prior Chapter 13 discharge was granted within two years, or if a prior Chapter 7 discharge was granted within four years, under 11 U.S.C. § 1328(f). A new case filed too soon may still proceed, but the discharge may be unavailable, which changes the value of filing. Because the waiting periods are measured from discharge dates, a debtor should gather the prior case information before filing again.
Where the Law Comes From
Chapter 13 sits in Title 11 of the United States Code at 11 U.S.C. §§ 1301 to 1330. The Federal Rules of Bankruptcy Procedure and local court rules govern procedure, and official forms are at uscourts.gov. The Legal Information Institute at law.cornell.edu publishes the statute. Because the debt ceilings and median income figures are adjusted over time, always check the current numbers on the U.S. Courts site before making a decision.
This guide is general information, not legal advice. Chapter 13 outcomes depend on income, debts, and local practice. A bankruptcy attorney or a court-approved legal aid program can advise you on your situation.