What is Chapter 13 bankruptcy?

Who can file

Chapter 13 is available to individuals, including sole proprietors, who have regular income — wages, business income, pensions, Social Security or other reliable sources. There are debt limits: as of April 2025, unsecured debts must be under $526,700 and secured debts under $1,580,125 (the figures adjust every three years). Corporations and partnerships cannot use Chapter 13. Credit counseling within 180 days before filing is required, as in Chapter 7.

How the plan works

The debtor proposes a plan showing how much they will pay each month to a Chapter 13 trustee, who distributes the money to creditors. The plan lasts three years if the debtor's income is below the state median, and five years if it is above. Payments must cover:

• Priority debts in full — recent taxes, child support and alimony arrears, and certain other claims.
• Arrears on secured debts the debtor wants to keep, such as missed mortgage payments, spread over the plan while regular payments continue.
• Car loans — sometimes reduced to the car's value (“cramdown”) if the loan is more than 910 days old.
• Unsecured creditors — at least what they would have received in a Chapter 7 liquidation, and all of the debtor's projected disposable income. Many plans pay unsecured creditors only a small percentage.

The process

1. File the petition, schedules and plan, and pay the $313 filing fee. The automatic stay begins.
2. Start plan payments to the trustee within 30 days, even before the plan is approved.
3. Attend the meeting of creditors, usually 20 to 50 days after filing.
4. The court holds a confirmation hearing; creditors and the trustee can object.
5. Make all plan payments for three to five years and complete a financial education course.
6. Receive the discharge of remaining eligible debts.

Why people choose Chapter 13

• Saving a home — Chapter 13 can stop a foreclosure and let the owner catch up on arrears over time, which Chapter 7 cannot do.
• Keeping non-exempt property — equity above exemption limits is protected, although creditors must receive at least its value through the plan.
• Too much income for Chapter 7 — people who fail the means test can still get relief.
• Lien stripping — a second mortgage or home equity loan that is completely underwater can often be reclassified as unsecured and largely discharged.
• Co-debtor stay — protects co-signers on consumer debts during the plan.
• Taxes and support arrears — can be paid over time without further collection.
• A prior Chapter 7 — a Chapter 13 discharge is available four years after a Chapter 7 case was filed, compared with eight years for a second Chapter 7.

Watch

Downsides

A plan lasting years requires steady income and discipline. Many Chapter 13 cases are dismissed before completion because payments are missed, often after a job loss or unexpected expenses. Plans can be modified if circumstances change, and a case can be converted to Chapter 7. Attorney fees are higher than for Chapter 7, commonly $3,000 to $6,000, but are often paid largely through the plan. The trustee also takes a percentage commission, usually up to 10 percent of payments.

Debts that survive

The Chapter 13 discharge is somewhat broader than Chapter 7's, but still does not eliminate most student loans, child support and alimony, most criminal fines and restitution, long-term debts such as a mortgage that continue beyond the plan, and certain taxes.

Credit effects

A Chapter 13 bankruptcy can stay on credit reports for up to seven years from filing, compared with ten years for Chapter 7. During the plan, borrowing usually requires trustee approval.

Getting help

Chapter 13 plans are technical, and local rules and trustee practices vary widely. A bankruptcy attorney can calculate whether a plan is feasible, compare it with Chapter 7 and alternatives such as loan modification, and draft a plan likely to be confirmed.

Plans can be paid off early in some districts, but unsecured creditors may then need to receive more.