Chapter 13 Bankruptcy: Complete Guide

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy, also known as "wage earner's plan" or "reorganization bankruptcy," allows individuals with regular income to create a court-approved repayment plan to pay off all or part of their debts over 3 to 5 years. Unlike Chapter 7, which liquidates assets to pay creditors, Chapter 13 lets you keep all your property while making monthly payments based on your income and expenses.

Chapter 13 is particularly beneficial for people who are behind on mortgage or car payments and want to avoid foreclosure or repossession. It provides a structured way to catch up on arrears while continuing to make regular monthly payments. At the end of the repayment period, remaining qualifying debts are discharged, giving you a fresh financial start.

Who Qualifies for Chapter 13?

1. Regular Income Requirement

You must have a regular, reliable source of income to fund your repayment plan. Acceptable income sources include:

• Wages from employment
• Self-employment income
• Pension or retirement income
• Social Security benefits
• Disability payments
• Rental income
• Regular contributions from family members

Your income must be sufficient to cover your regular living expenses plus the proposed plan payment.

2. Debt Limits

As of 2026, your debts must be below these limits to qualify for Chapter 13:

• Secured debts: Less than $1,395,875 (mortgages, car loans, etc.)
• Unsecured debts: Less than $465,275 (credit cards, medical bills, personal loans)

Note: These limits are adjusted every 3 years for inflation. If your debts exceed these amounts, you may need to file Chapter 11 instead.

3. Tax Filing Requirement

You must have filed all required federal and state tax returns for the 4 years before filing bankruptcy. If you haven't filed, you must do so before your case can proceed.

4. Credit Counseling

Like Chapter 7, you must complete an approved credit counseling course within 180 days before filing.

5. Previous Bankruptcy Filings

If you've filed bankruptcy before, you must wait specific periods before filing Chapter 13:

• 2 years after a previous Chapter 13 discharge
• 4 years after a previous Chapter 7 discharge

How Chapter 13 Payment Plans Work

Payment Plan Length

Your plan length depends on your income relative to your state's median income:

• Below median income: Minimum 3 years (36 months)
• Above median income: Must be 5 years (60 months)

Payment Amount Calculation

Your monthly payment is based on your disposable income—the amount left over after subtracting allowable living expenses from your income. The court uses IRS standards for many expenses.

Example Calculation:

Gross monthly income	$4,500
- Taxes and mandatory deductions	-$900
- Housing and utilities	-$1,400
- Food and household supplies	-$800
- Transportation	-$600
- Insurance and healthcare	-$400
- Other necessary expenses	-$200
= Disposable income (Plan payment)	$200/month

What Gets Paid in Your Plan?

Your plan must pay certain debts in full and may pay others partially:

Priority Debts (Must be paid 100%):

• Recent tax debts (less than 3 years old)
• Child support and alimony arrears
• Unpaid wages owed to employees (if business owner)
• Bankruptcy trustee fees and attorney fees

Secured Debt Arrears (Must catch up on missed payments):

• Mortgage arrears (back payments)
• Car loan arrears
• Other secured loan arrears

Note: You continue making regular monthly payments on secured debts directly to creditors, while the plan pays arrears.

Unsecured Debts (Paid pro-rata from remaining funds):

• Credit card balances
• Medical bills
• Personal loans
• Collection accounts

Unsecured creditors receive a percentage of what you owe based on your disposable income. This can range from 0% to 100%.

Chapter 13 Timeline

Benefits of Chapter 13

Disadvantages of Chapter 13

Chapter 13 vs. Chapter 7: Which Should I Choose?

Detailed Comparison Guide →

Common Reasons to File Chapter 13

1. Saving Your Home from Foreclosure

If you're behind on mortgage payments and facing foreclosure, Chapter 13 can stop the foreclosure immediately and give you 3-5 years to catch up on arrears while making current monthly payments. This is the primary reason many people choose Chapter 13 over Chapter 7.

2. Preventing Car Repossession

Similar to mortgages, Chapter 13 allows you to catch up on car loan arrears over time. You can also potentially reduce the loan balance to the car's current value if you've owned it for more than 2.5 years ("cramdown").

3. You Don't Qualify for Chapter 7

If your income is too high to pass the Chapter 7 means test, Chapter 13 may be your only bankruptcy option.

4. Protecting Non-Exempt Assets

If you own property that exceeds exemption limits in Chapter 7 (expensive car, valuable collections, investment property), Chapter 13 lets you keep everything by paying the non-exempt value to unsecured creditors through your plan.

5. Dealing with Recent Tax Debts

Recent tax debts (less than 3 years old) cannot be discharged in Chapter 7, but Chapter 13 gives you 3-5 years to pay them off without penalties and interest accruing.

6. Co-Signer Protection

Chapter 13's co-debtor stay protects co-signers on consumer debts from collection while you're in bankruptcy, which Chapter 7 doesn't provide.

How Much Does Chapter 13 Cost?

Court Filing Fee: $313 (can be paid in installments)

Attorney Fees: Typically $2,500-$6,000 depending on case complexity and location. Most attorneys allow you to pay a portion upfront ($1,000-$2,000) with the remainder paid through your Chapter 13 plan.

Trustee Fees: The Chapter 13 trustee takes a percentage of each payment (usually 3-10%) to administer your case. This is factored into your plan payment.

Credit Counseling: $10-$50 (before filing)

Financial Management Course: $10-$50 (before discharge)

Total Upfront: Most people pay $1,500-$3,000 to file, with remaining fees paid through the plan.

Can My Chapter 13 Plan Be Modified?

Yes. Life circumstances change during 3-5 years, and Chapter 13 allows for plan modifications:

Reasons for Modification:

• Job loss or income reduction
• Medical emergency or disability
• Unexpected expenses (car repair, home repair)
• Income increase (plan payment may increase)
• Creditor objections

You can file a motion to modify your plan, but it requires court approval. If you're unable to continue payments due to circumstances beyond your control, you may be able to receive a hardship discharge of remaining debts.

What Happens If I Miss Payments?

Missing Chapter 13 plan payments is serious and can result in:

• Case Dismissal: Trustee or creditors can move to dismiss your case
• Loss of Protection: Automatic stay lifts; creditors can resume collection
• Foreclosure Resumes: If saving your home, foreclosure can proceed

Options if you can't make payments:

• File for plan modification if circumstances have changed
• Request hardship discharge if you can prove inability to continue
• Convert to Chapter 7 (if you now qualify)
• Dismiss voluntarily and refile later

Life During Chapter 13

While in Chapter 13, you'll experience some restrictions:

Restrictions:

• Cannot incur new debt over $1,000 without trustee permission
• Cannot sell property without court approval
• Tax refunds may need to be turned over to trustee
• Must report income changes to trustee
• Cannot pay creditors outside the plan

What You Can Do:

• Continue working and earning income
• Live in your home and drive your car
• Buy necessities and pay living expenses
• Change jobs (must notify trustee)
• Get married or divorced (may affect plan)

Next Steps

1. Evaluate Your Situation: Determine if you have regular income and whether you want to keep assets like your home or car.
2. Calculate Your Payment: Estimate your disposable income to see what your monthly plan payment might be.
3. Compare to Chapter 7: Use our means test calculator to see if you qualify for Chapter 7, then decide which chapter is best.
4. Consult an Attorney: Chapter 13 is complex. Most people benefit from professional legal guidance.
5. Gather Documents: Prepare 6 months of pay stubs, 2 years of tax returns, list of debts and assets.
6. Complete Credit Counseling: Required before filing.

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