Chapter 13 bankruptcy is a reorganization for people with regular income. Rather than selling property, the debtor proposes a plan to repay some or all debts across three to five years while holding onto assets such as a home and a car. It is frequently the choice for those who earn too much to pass the Chapter 7 means test, or who have fallen behind on a mortgage and want to catch up without losing the house.
How a Reorganization Proceeds
A case begins with a petition in the United States Bankruptcy Court. The filing triggers an automatic stay under 11 U.S.C. § 362, pausing most collection activity, including foreclosure and repossession. A standing trustee is assigned to run the case, gather the debtor's monthly plan payments, and distribute the money to creditors as the plan directs. Unlike Chapter 7, no nonexempt assets are liquidated. The debtor keeps property and pays creditors out of future income.
Eligibility Rules
Only individuals with regular income may file, and the law limits how much debt a filer may carry. Under 11 U.S.C. § 109(e), ceilings apply to secured and unsecured debt and are adjusted periodically. A filer whose debts exceed the caps may be ineligible for Chapter 13. Self-employed people and sole proprietors can qualify, but corporations and partnerships cannot. Current limits are published at uscourts.gov and change over time, so verify the figures before relying on them.
Building the Repayment Plan
The plan is the core of a Chapter 13 case. It must be filed within a set time after the petition and confirmed by the court. A plan generally runs three years, or up to five if the debtor's income is above the state median. The debtor must devote 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 keeping up regular payments, curing arrears, or in some cases modifying the loan.
What a Plan Can Accomplish
- 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.
The Discharge and Its Exceptions
Once the debtor finishes 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 ends 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 Versus 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 |
Payments and the Trustee
After the court confirms the plan, the debtor makes a single monthly payment to the trustee rather than paying each creditor separately. The trustee takes a fee set by law and distributes the rest as the plan directs. Payments typically start within about thirty days after the petition is filed, even before confirmation, so the debtor should budget for them immediately. The amount rests on projected disposable income, meaning income above what is reasonably necessary for the debtor's living expenses and dependents.
Changing, Converting, or Ending the Case
A plan is not set in stone. If income or expenses shift, the debtor may ask the court to modify it, and a trustee may also seek modification. If the debtor cannot keep going, the case may be converted to Chapter 7 or dismissed. Dismissal lifts the automatic stay and restores the parties to their prior positions, though payments already made may not be returned. Conversion to Chapter 7 brings the means test back into play and can place nonexempt property at risk. Because these paths carry different consequences, the choice should be made with advice rather than by simply missing payments.
Steps Before Filing
Chapter 13 also demands 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 start on a correct footing.
Repeat Filings and Waiting Periods
Timing rules limit repeat filings. A debtor generally cannot receive a Chapter 13 discharge if a prior Chapter 13 discharge came within two years, or a prior Chapter 7 discharge within four years, under 11 U.S.C. § 1328(f). A case filed too soon may still move forward, but the discharge may be unavailable, which changes the value of filing. Because the waiting periods run from discharge dates, gather the prior case information before filing again.
The Legal Framework
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 debt ceilings and median income figures are adjusted over time, always check the current numbers on the U.S. Courts site before deciding.
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.