Definition
Chapter 13 bankruptcy is a form of federal bankruptcy in which an individual with regular income proposes a court-approved plan to repay some or all of their debts over three to five years. Often called the "wage-earner's plan" or a reorganization, it allows filers to keep their property—including a home in foreclosure—while catching up on missed payments. At the end of a successful plan, qualifying remaining debts are discharged.
Legal Meaning
Chapter 13 is governed by Chapter 13 of the United States Bankruptcy Code and is available only to individuals (and sole proprietors), not corporations or partnerships. Because bankruptcy is federal law, the same statute applies nationwide, though exemption values and median-income thresholds differ by state. Chapter 13 is designed for people who have steady income but have fallen behind on debts and want to keep valuable property they could lose in a Chapter 7 liquidation.
Instead of selling assets, a Chapter 13 debtor commits future income to a structured repayment plan administered by a standing trustee. The debtor makes a single monthly payment to the trustee, who then distributes the funds to creditors according to the plan and the priorities set by law. Secured debts and priority claims generally must be paid, while general unsecured creditors often receive only a portion of what they are owed.
The most distinctive advantage of Chapter 13 is its power to cure arrears on a mortgage or car loan. A homeowner facing foreclosure can stop the sale, spread the past-due payments over the life of the plan, and keep the house by resuming normal payments. This makes Chapter 13 a cornerstone of bankruptcy law for people who want to save a home or other property.
Key Points
- Chapter 13 is a reorganization, not a liquidation—you repay debts through a plan rather than surrendering assets
- Plans last three years for below-median filers and five years for above-median filers
- It is available only to individuals with regular income and debts under statutory limits
- Filing triggers the automatic stay, which immediately stops collection, garnishment, and foreclosure
- You can cure mortgage and car-loan arrears while keeping the property
- Priority debts like recent taxes and support generally must be paid in full
- Unsecured creditors often receive only a fraction of their claims
- The co-debtor stay can also protect friends or family who guaranteed your consumer debts
Real-World Example
Dana falls $11,000 behind on her mortgage after a medical leave, and the lender schedules a foreclosure sale. She does not want to lose the home, so a Chapter 7 discharge would not solve her problem because it would not cure the arrears.
Dana files Chapter 13. The automatic stay cancels the foreclosure sale, and her attorney proposes a five-year plan: she resumes her regular mortgage payment and pays the $11,000 in arrears in equal installments through the trustee, along with a modest payment toward her credit card debt. As long as Dana keeps up with the plan, she keeps her house, and any remaining qualifying unsecured debt is discharged when the plan ends.
Chapter 7 vs. Chapter 13 Compared
| Feature | Chapter 7 | Chapter 13 |
|---|---|---|
| Type | Liquidation | Reorganization / repayment plan |
| Duration | About 3-6 months | 3 to 5 years |
| Who can file | Individuals and businesses | Individuals with regular income only |
| Cure mortgage arrears? | No | Yes—save the home over time |
| Keep non-exempt property? | May be sold by trustee | Yes, if you pay its value into the plan |
| Repay unsecured creditors? | Usually nothing | A portion, based on disposable income |
| Time on credit report | Up to 10 years | Up to 7 years |
How a Chapter 13 Plan Works
Within a short period after filing, the debtor must submit a proposed repayment plan and begin making payments to the trustee even before the court approves it. The plan must satisfy several legal tests. It must commit all of the debtor's projected disposable income for the applicable commitment period, and it must pay unsecured creditors at least as much as they would have received in a Chapter 7 liquidation—this is called the "best interests of creditors" test.
At a confirmation hearing, the bankruptcy judge reviews the plan and, if it meets the requirements, confirms it. Creditors and the trustee may object, often over the plan's feasibility or the treatment of secured claims. Once confirmed, the debtor must keep making payments and stay current on ongoing obligations such as the mortgage and post-filing taxes. If circumstances change, the plan can sometimes be modified.
The Discharge in Chapter 13
After completing all plan payments and finishing the required financial management course, the debtor receives a Chapter 13 discharge. Historically, the Chapter 13 discharge was somewhat broader than Chapter 7, but the categories of non-dischargeable debt are now largely similar. Most student loans, recent taxes, child support, alimony, and debts from fraud generally remain owed. Like other chapters, Chapter 13 does not erase valid liens unless the plan specifically addresses them.
Related Terms
Trying to Save Your Home?
Chapter 13 can stop foreclosure and let you catch up over time. Learn more about your options.
Explore Bankruptcy LawWhen You Need a Lawyer
Chapter 13 plans are highly technical, and a poorly drafted plan can be rejected by the court or doomed to fail. Working with a bankruptcy attorney is strongly recommended, especially if:
- You are trying to stop a foreclosure or repossession and keep the property
- You owe priority debts such as recent taxes or back child support
- Your debts approach the statutory eligibility limits
- You are unsure whether you can realistically afford the plan payments
- A creditor or the trustee objects to your plan at confirmation
- You need to decide between Chapter 7 and Chapter 13
A lawyer can structure a confirmable plan, protect your property, and guide you through the multi-year process. For background on costs, see our guides on understanding legal fees and how to choose a lawyer.
Frequently Asked Questions
How long does a Chapter 13 repayment plan last?
A Chapter 13 plan lasts either three or five years. Filers whose income is below the state median may propose a three-year plan, while those above the median are generally required to commit to a five-year plan. The exact length depends on your income, your debts, and how much you must repay to satisfy the court's requirements.
Can Chapter 13 bankruptcy stop a foreclosure?
Yes. Filing Chapter 13 triggers the automatic stay, which immediately halts a pending foreclosure sale. More importantly, Chapter 13 lets you cure mortgage arrears by spreading the missed payments across your repayment plan while you resume regular monthly payments. This ability to catch up over time is one of the main reasons homeowners choose Chapter 13 over Chapter 7.
What is the difference between Chapter 7 and Chapter 13?
Chapter 7 is a liquidation that wipes out most unsecured debt in a few months, while Chapter 13 is a reorganization in which you repay creditors through a three-to-five-year plan. Chapter 13 lets you keep non-exempt property and cure mortgage or car-loan arrears, but it requires regular income to fund the plan. Chapter 7 is faster but does not help you catch up on secured debts.
Do I have to repay all my debts in Chapter 13?
Usually not. Priority debts such as recent taxes and support obligations must generally be paid in full, and secured arrears must be cured, but unsecured creditors like credit card companies often receive only a fraction of what they are owed. At the end of the plan, the remaining balance on qualifying unsecured debts is discharged. How much you repay depends on your disposable income and the value of your non-exempt assets.
Who is eligible to file Chapter 13 bankruptcy?
Chapter 13 is available to individuals with regular income whose secured and unsecured debts fall below certain statutory limits that are adjusted periodically. You must have enough steady income to make the proposed plan payments and stay current on ongoing obligations. Businesses cannot file Chapter 13, and you must complete pre-filing credit counseling.