Chapter 13 Bankruptcy
Chapter 13 bankruptcy summary:
With a Chapter 13 bankruptcy, you get a period of three to five years to repay debts without giving up assets.
If you earn too much for a Chapter 7 bankruptcy, you may be able to file for Chapter 13.
Bankruptcy protects you from debt collectors’ actions.
Chapter 13 bankruptcy definition and meaning
Definition: Chapter 13 bankruptcy allows debtors to keep their property and repay debts over time. To be eligible for Chapter 13 bankruptcy, the person filing must have regular income and make regular, mandatory payments to the bankruptcy court for three to five years. Your income and household size, relative to the median income for your state, determine the length of your repayment plan.
A bankruptcy trustee collects payments and distributes them to the debtor's creditors. At the end of the payment plan, any remaining balances are discharged. Bankruptcy discharge means you no longer have any legal responsibility for the debt.
Chapter 13 bankruptcy is designed to help people with regular income pay their debts off over time while keeping their assets. For example, if you fall behind on mortgage payments, you could use Chapter 13 to get caught up and avoid foreclosure.
This type of arrangement is also called a wage-earner's plan.
Chapter 13 bankruptcy basics
Chapter 13 bankruptcy allows you to establish a repayment plan for your debt. You'll have three or five years to repay what you owe. At the end of the payment plan, any remaining balances are discharged, so you're no longer responsible for them.
Here are some key facts to know about Chapter 13 bankruptcy:
All debtors must complete credit counseling through an approved agency before filing their bankruptcy petition.
When you file a Chapter 13 petition, the court grants an automatic stay. This prevents your creditors from taking collection actions against you until your bankruptcy case is dismissed or discharged.
A bankruptcy judge assigns a trustee to your case. The bankruptcy trustee's primary job is to collect payments and distribute the money to your creditors.
Failing to follow through on plan payments could result in a dismissal of your case. If your case is dismissed, creditors could resume collection actions against you.
Before you can get a final discharge, you'll need to complete debtor education through an approved agency.
Chapter 13 bankruptcy eligibility
Chapter 13 bankruptcy has two key eligibility requirements.
You must have a regular income to pay your debts.
Your total debts must be less than $2,750,000 (as of 2025).
The debt figure applies to both secured and unsecured debts. A secured debt is tied to something of value that you own. Mortgages and car loans are two examples of secured debt.
Unsecured debts aren't backed by any collateral. Credit cards, medical bills, and personal loans are all examples of unsecured debts.
Chapter 13 bankruptcy vs. Chapter 7 bankruptcy
Chapter 13 bankruptcy lets you repay debts over time, while Chapter 7 bankruptcy could wipe them out completely. So why would you choose Chapter 13 vs. Chapter 7?
It could make sense to do so if you:
Have assets you want to keep. Chapter 7 requires you to give up some of your assets to the bankruptcy trustee to repay your creditors.
Don't pass the means test. To file Chapter 7, you must pass a test that shows how much your family makes. This test compares your income to the average family income in your state. You're not eligible for Chapter 7 if you make too much money.
Want to halt collection actions. Bankruptcy protects you from collection actions, including lawsuits, through the automatic stay. You might consider Chapter 13 if you can repay your debts but are concerned about a debt lawsuit or mortgage foreclosure.
In terms of credit score impact, Chapter 13 could stay on your credit reports for seven years. Chapter 7 stays on your credit for 10 years. It may take time for your credit to recover, but it's entirely possible to get your score back on track after bankruptcy.
If you're worried about credit score damage or aren't sure bankruptcy is the right move, consider FAQs
Chapter 13 Bankruptcy FAQs
How long does bankruptcy take?
Chapter 7 bankruptcy can usually be completed within six months. The actual time it takes you to receive a discharge is determined by the complexity of your case.
Chapter 13 bankruptcies take up to three years for people with lower incomes and five years for everyone else. Bankruptcies are public record, and any entity that pulls your credit report will know that you've filed.
Once you're out of bankruptcy you may be looking at another 12 to 18 months to begin to see a recovery in your credit scores.
What is the difference between Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy requires you to give up some of your assets in exchange for forgiving your debts. This type of filing often makes sense for people who have large amounts of unsecured debts, such as credit cards or medical bills, that they can't afford to repay.
Chapter 13 lets you keep your assets but requires you to give up your disposable income (anything not needed for basic living) for several years. Your income must be under specific thresholds for you to be eligible to file Chapter 7. Your debt must be under specific thresholds to be eligible to file for Chapter 13.
Why would a Chapter 13 bankruptcy fail?
Fewer than half of Chapter 13 filers fully complete their plans and receive discharges. People who file Chapter 13 without an attorney are far more likely to fail because it's complicated. Many filers can't afford years of plan payments or stomach the lifestyle required to make them. And others file Chapter 13 to stop foreclosure or buy some time but don't qualify for a plan in the end.
If you start a Chapter 13 payment plan but stop making payments, your trustee could recommend to the court that your case be dismissed. If your case is dismissed instead of discharged, that could open you up to collection actions again.
Related Articles
We explain the advantages and pitfalls of Chapter 13 bankruptcy and how to tell if it’s right for you. Avoid costly mistakes by understanding your options.
Learn how to decide between Chapter 7 vs Chapter 13 bankruptcy—or if you need bankruptcy at all.
Sometimes bankruptcy doesn’t erase your debts. You may have other options that are more appropriate and affordable. Learn more here.
We explain the advantages and pitfalls of Chapter 13 bankruptcy and how to tell if it’s right for you. Avoid costly mistakes by understanding your options.
Learn how to decide between Chapter 7 vs Chapter 13 bankruptcy—or if you need bankruptcy at all.
Sometimes bankruptcy doesn’t erase your debts. You may have other options that are more appropriate and affordable. Learn more here.