Chapter 13 Bankruptcy

What Chapter 13 Bankruptcy Actually Is

Chapter 13 of the U.S. Bankruptcy Code is often called the 'wage earner's plan.' Rather than liquidating your property the way Chapter 7 does, Chapter 13 lets a person with regular income reorganize what they owe into a single, court-supervised repayment plan. You keep your assets and pay creditors a portion of your income over a fixed period, after which most remaining qualifying balances are discharged (uscourts.gov). It is designed for people who have fallen behind but have enough steady income to catch up if given structured time and protection from collection.

The moment a Chapter 13 case is filed, an automatic stay under Bankruptcy Code §362 takes effect. The stay stops foreclosure sales, vehicle repossessions, wage garnishments, lawsuits, and collection calls while the case proceeds (uscourts.gov). For many filers, this immediate halt to a pending foreclosure or repossession is the central reason they choose Chapter 13 over Chapter 7.

The Three-to-Five-Year Repayment Plan

At the heart of every Chapter 13 case is the repayment plan. You propose a plan that directs a fixed monthly payment to a Chapter 13 trustee, who in turn distributes the money to creditors according to priority rules. The plan length is set by your income: filers whose income is below their state's median family income generally use a three-year plan, while those above the median must commit to a five-year plan (uscourts.gov). Plan payments typically begin within 30 days of filing, even before the plan is formally confirmed by the court.

Around 20 to 40 days after filing, the trustee holds a meeting of creditors — the 341 meeting — where you answer questions under oath about your finances and your proposed plan (uscourts.gov). The trustee, not a judge, runs this meeting. The bankruptcy judge later holds a confirmation hearing to decide whether the plan meets the Code's requirements. Once confirmed, the plan binds you and your creditors, and you make payments on schedule until the term ends and you receive your discharge.

Curing Mortgage and Car Arrears

The signature power of Chapter 13 is the ability to 'cure' arrears. If you are behind on a mortgage or car loan, the plan can spread the past-due balance — the arrears — across the full three-to-five-year term while you resume your regular contractual payments going forward. By the end of the plan, the loan is current and you keep the collateral. Chapter 7 cannot do this: it can discharge your personal liability on a debt, but it offers no mechanism to catch up missed payments and keep the home or car (uscourts.gov). This is why people facing foreclosure who want to stay in their home are routinely steered toward Chapter 13.

Protecting Non-Exempt Assets

In Chapter 7, a trustee can sell property that exceeds your available exemptions to pay creditors. Exemptions come from either the federal set under §522(d) or your state's list, with the 730-day domicile rule under §522(b)(3) determining which state's exemptions apply (uscourts.gov). When you own valuable equity that exemptions do not fully cover — a paid-off second vehicle, a coin collection, investment property — Chapter 7 puts that asset at risk. Chapter 13 lets you keep it. The trade-off is that your plan must pay unsecured creditors at least as much as they would have received if those non-exempt assets had been liquidated in a Chapter 7. This 'best interests of creditors' test sets the floor for what your plan must pay, but you keep the property itself.

When Chapter 13 Is Required Instead of Chapter 7

Chapter 7 is not available to everyone. The means test compares your six-month average gross income against your state's median family income for your household size, using Form 122A-1 (justice.gov/ust/means-testing). If your income is below the median, Chapter 7 is generally available. If it is above the median, you complete the additional Form 122A-2 calculation, and if that calculation shows you have disposable income to repay creditors, the court may presume your Chapter 7 filing is an abuse — pushing you into Chapter 13 instead (justice.gov). The U.S. Trustee's median tables in effect from April 1, 2026 govern current cases. Beyond the means test, people choose or are required to use Chapter 13 when they are behind on secured debt they want to keep, when they have priority debts like recent taxes or domestic-support obligations that must be paid in full, or when they have non-exempt assets to protect.

Both chapters share procedural requirements. You must complete a credit-counseling course from an approved agency within the 180 days before filing, and a debtor-education course (certified on Form 423) before discharge (uscourts.gov). The chapters also differ in how often you can use them and what they leave untouched: most taxes, domestic-support obligations, fraud debts, and student loans generally survive a discharge in either chapter unless separately addressed.

The Student-Loan Overlay

Filing Chapter 13 does not by itself discharge federal student loans. But neither does Chapter 7 — and in both chapters, student debt can be addressed through a separate lawsuit inside the bankruptcy called an adversary proceeding (AP) under §523(a)(8). To win, you must show that repaying the loans would impose an 'undue hardship,' a standard most courts evaluate using the three-prong Brunner test, while some circuits use a totality-of-the-circumstances approach (justice.gov). There is no separate filing fee for the AP under Federal Rule of Bankruptcy Procedure 4007(b). A November 17, 2022 joint guidance from the DOJ and Department of Education, paired with an attestation form, streamlined how the government evaluates these cases; courts granted full or partial discharge in roughly 98% of cases decided between November 2022 and March 2024 (studentaid.gov). That guidance is non-binding and does not bind the courts, but it has made the path more navigable. Private student loans are treated as general unsecured debt and can be dischargeable without proving undue hardship (studentaid.gov; CFPB). The key point for Chapter 13 filers: choosing the reorganization chapter does not close the door on addressing student loans — the adversary proceeding remains available within your case.

Weighing the Consequences

Chapter 13 is not free of cost. A bankruptcy filing appears on your credit report and can affect your ability to obtain new credit. Committing to a three-to-five-year plan requires sustained, disciplined payments, and a significant share of plans are not completed. Whether Chapter 13 is the right tool depends on your income, the debts you are trying to save collateral on, and your local court's practices. People's Justice is not a law firm and does not provide legal advice; we connect you with licensed attorneys, and we are not a government agency. The information here is general and is not a promise of any particular outcome.

Eligibility, Debt Limits, and the Confirmation Standard

Chapter 13 is available to individuals (including sole proprietors) with regular income whose debts fall under the statutory limits set in §109(e), and who have completed the required pre-filing credit counseling (uscourts.gov). Because the plan must be funded from income, a filer must demonstrate the ability to make consistent payments. The confirmation standard requires that the plan be proposed in good faith, that it pass the best-interests-of-creditors test (unsecured creditors receive at least the Chapter 7 liquidation value of non-exempt assets), and — for above-median filers — that all projected disposable income over the five-year commitment period be devoted to the plan.

Priority Debts and Secured-Claim Treatment

Chapter 13 plans distribute payments by priority. Administrative claims and priority debts — including most recent taxes and domestic-support obligations — must generally be paid in full over the plan term (uscourts.gov). Secured claims you wish to keep current, like a mortgage in arrears, are cured through the plan. General unsecured creditors receive whatever remains, which may be only a fraction of what is owed. This structure is precisely why someone with a large priority tax debt or significant mortgage arrears often cannot use Chapter 7 effectively and turns to Chapter 13.

How the Student-Loan Adversary Proceeding Fits Inside a Chapter 13 Case

An adversary proceeding is a separate lawsuit filed within the bankruptcy to obtain a court determination that repaying student loans would be an undue hardship under §523(a)(8). It can be brought in a Chapter 13 case as readily as in Chapter 7. The November 2022 DOJ/ED guidance directs government attorneys to use a standardized attestation form to evaluate a borrower's income, expenses, and future circumstances, and to stipulate to discharge where the facts support it (justice.gov; current form at justice.gov/d9/2024-05/StudentLoanAttestationFillableForm.pdf). The reported outcome — full or partial discharge in approximately 98% of cases decided November 2022 through March 2024 (studentaid.gov) — reflects cases that proceeded under the new process and is not a guarantee for any individual. Federal loans require the AP; private loans are treated as ordinary unsecured debt and can be discharged through the plan without an undue-hardship showing (studentaid.gov; CFPB).