Chapter 13 bankruptcy allows individuals with regular income to keep their property while repaying some or all of their debts through a structured repayment plan lasting 3 to 5 years.
Who Qualifies?
Chapter 13 is available to individuals (not businesses) who:
Have regular income sufficient to fund a repayment plan
Have unsecured debts below a specified limit (adjusted periodically)
Have secured debts below a specified limit
Are current on tax filings for the previous four years
Have completed an approved credit counseling course
The Repayment Plan
The heart of Chapter 13 is the plan, which proposes how the debtor will repay creditors over 3–5 years:
Below-median income debtors may propose a 3-year plan
Above-median income debtors generally must commit to a 5-year plan
Secured debts — if the debtor wants to keep the collateral (home, car)
Administrative costs — trustee fees and attorney fees
Unsecured creditors receive whatever amount remains after paying priority and secured claims, but the plan must pay them at least as much as they would receive in a Chapter 7 liquidation (the "best interests of creditors" test).
Advantages Over Chapter 7
Keep your property — including your home (you can cure mortgage arrearages through the plan)
Protect co-signers — the co-debtor stay prevents creditors from pursuing co-signers on consumer debts
Strip junior liens — if your home is worth less than the first mortgage, you may be able to eliminate second mortgages
Pay back taxes — you can repay tax debts over the plan period without interest and penalties accruing
No means test disqualification — available regardless of income level
Completing the Plan
Upon successful completion of all plan payments, remaining eligible unsecured debts are discharged. The Chapter 13 discharge is broader than Chapter 7, covering some debts that Chapter 7 cannot eliminate.
Failure to Complete
If you cannot keep up with payments, options include:
Plan modification — request the court to adjust payments based on changed circumstances
Hardship discharge — available in limited circumstances when the debtor cannot complete the plan due to circumstances beyond their control
Conversion to Chapter 7 — switch to a liquidation case
Dismissal — voluntarily dismiss the case (you remain liable for all debts)
Quiz: Chapter 13 Repayment Plans
Question 1 of 3
How long does a Chapter 13 repayment plan typically last?