What Is Chapter 13 Bankruptcy? How the Chapter 13 Repayment Plan Works and Who It's For

Chapter 13 bankruptcy is a federal legal process that lets people with regular income reorganize their debts into a single court-approved repayment plan, typically lasting three to five years.

Unlike Chapter 7, which can sell off non-exempt property, Chapter 13 lets you keep your assets, including your home, while you catch up on what you owe. It's often called the "wage earner's plan," and it's especially useful if you're behind on a mortgage and want to stop a foreclosure.

Key Takeaways

• Chapter 13 reorganizes debt into a repayment plan. You repay some or all of what you owe over three to five years through a court-approved plan, and the length depends largely on whether your income is above or below your state's median.

• You keep your assets. Unlike Chapter 7, Chapter 13 lets you hold onto property, including a home with equity above your exemptions.

• It can stop foreclosure. Chapter 13 lets you catch up on missed mortgage payments over time, which is a major reason people choose it.

• You need regular income. A steady income is required to fund the plan, and there are limits on how much debt you can have.

• It can also protect a co-signer. A unique feature called the co-debtor stay can pause collection against someone who co-signed a debt with you, as long as it's a personal debt and your plan pays it in full.

• Completing the plan takes commitment. Only about 40% of filers complete their plans, so the monthly payment needs to fit your real budget.

• It affects your credit. A Chapter 13 is typically removed from your credit report after seven years, sooner than Chapter 7's 10.

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What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a type of bankruptcy governed by Chapter 13 of the U.S. Bankruptcy Code, Title 11 of the United States Code. It's designed for individuals with a regular income who can repay some or all of their debts over time, rather than having them wiped out all at once.

It's often called the "wage earner's plan" because it's built around a repayment schedule funded by your income. Instead of liquidating your property the way Chapter 7 bankruptcy can, Chapter 13 lets you keep what you own while you make monthly payments to a court-appointed trustee, who distributes the money to your creditors.

Chapter 13 is the second most common type of consumer bankruptcy after Chapter 7. It's particularly valuable for homeowners who are behind on their mortgage, people with non-exempt assets they want to protect and filers whose income is too high to qualify for Chapter 7.

How Does Chapter 13 Bankruptcy Work?

Chapter 13 follows a structured path from filing to discharge. Here's how it typically unfolds:

1. Complete credit counseling. Before filing, federal law requires you to complete a credit counseling session with a U.S. Trustee-approved agency, usually within the 180 days before you file.

2. File your petition and proposed plan. You file a bankruptcy petition along with a proposed repayment plan and detailed schedules of your income, debts, assets and expenses. The filing fee is $313, and courts allow debtors to request paying that fee in installments rather than all at once if a lump sum isn't affordable. Our guide on how much it costs to file bankruptcy breaks down the full cost, including attorney fees. The moment you file, the automatic stay takes effect and most collection actions, including foreclosure, must stop.

3. Find out your plan length. Your repayment period isn't always your choice. If your household income is below your state's median for a similar-sized family, your plan is generally three years. If your income is above the median, federal law generally requires a five-year plan, though a court can approve a shorter period "for cause." In no case can a plan run longer than five years.

4. Start making plan payments. You generally begin making payments to the trustee about 30 days after filing, even before the court formally approves your plan. Falling behind early can jeopardize your case. The trustee deducts a percentage-based fee, set by the U.S. Trustee Program, from each payment before distributing the rest to your creditors.

5. Attend the 341 meeting. About 20 to 40 days after filing, you'll attend a meeting of creditors, where the trustee reviews your proposed plan and asks questions about your finances.

6. Get your plan confirmed. The court holds a confirmation hearing, typically 45 to 90 days after filing, where the judge reviews your plan. Creditors can object, and you may need to adjust the plan before it's approved.

7. Complete the repayment plan. You make monthly payments for three to five years. You'll also need to complete a debtor education course before discharge.

8. Receive your discharge. Once you finish all required payments and the debtor education course, the court discharges remaining eligible balances, like leftover credit card or medical debt.

Who Qualifies for Chapter 13?

Chapter 13 has specific eligibility requirements. To file, you generally need:

• A regular source of income. Enough steady income to fund your proposed plan payments.

• Debts within the limits. Your debts must fall under the legal caps.

• To be an individual. Corporations and partnerships can't file Chapter 13, since it's for individuals, including sole proprietors.

• Current tax filings. You typically need to be up to date on required tax returns.

For cases filed between April 1, 2025, and March 31, 2028, the combined debt limit is $526,700 for unsecured debts and $1,580,125 for secured debts. These figures are set under 11 U.S.C. § 109(e) and adjusted for inflation every three years. If your debts exceed these limits, Chapter 11 may be your only reorganization option.

Chapter 13 vs. Chapter 7: What's the Difference?

The two most common consumer bankruptcies work very differently. Here's a side-by-side look:

The biggest practical difference is what happens to your property. If you're behind on a mortgage or have assets you can't protect with exemptions, Chapter 13 may serve you better. If your income is low and your debt is mostly unsecured, Chapter 7 may be faster and cheaper. Our full comparison of Chapter 7 vs. Chapter 11 vs. Chapter 13 breaks down the trade-offs across all three personal options.

Looking for a way to consolidate what you owe before bankruptcy becomes necessary? Compare personal loan offers or explore debt consolidation options first, since bankruptcy is generally a last resort after other paths have been ruled out.

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

Can Chapter 13 Save Your Home From Foreclosure?

Yes, stopping foreclosure is one of Chapter 13's biggest advantages. Filing triggers an automatic stay that immediately halts a foreclosure, and the repayment plan lets you cure your past-due mortgage payments over three to five years while staying current on your ongoing payments. For many homeowners in arrears, that combination is the main reason to choose Chapter 13 over Chapter 7.

Chapter 13 can also help with a car loan. You can spread missed car payments across your plan, and in some cases reduce the loan balance. Our guide on what happens to your car covers how that works. Keep in mind that protection depends on keeping up with your plan.

Can Chapter 13 Protect Someone Who Co-Signed Your Debt?

Yes, and this is one of Chapter 13's most distinctive features, one that Chapter 7 and Chapter 11 don't offer. It's called the co-debtor stay, and it comes from 11 U.S.C. § 1301.

Here's how it works: if someone, a parent, spouse, friend or anyone else, co-signed a personal debt with you, the co-debtor stay generally prevents your creditor from pursuing that person for collection while your Chapter 13 case is active. A few important limits apply:

• It only covers consumer debts. The debt must have been incurred for a personal, family or household purpose, like a car loan, credit card or medical bill. It doesn't apply to business debts.

• It only protects individuals, not businesses. A co-signing corporation or LLC isn't covered.

• Full protection generally requires paying the debt in full through your plan. If your plan doesn't propose to pay the co-signed debt in full, a creditor can ask the court for permission to pursue the co-signer for the unpaid portion.

• It lasts only as long as the case is open. The stay ends if your case closes, is dismissed or converts to Chapter 7.

If you have a co-signed debt you're worried about, this protection is worth discussing directly with a bankruptcy attorney, since how you structure your plan can determine whether your co-signer stays fully protected.

What Debts Does Chapter 13 Cover?

Chapter 13 reorganizes most debts, but it treats them differently based on type:

• Priority debts. Things like recent taxes and past-due child support generally must be paid in full through the plan.

• Secured debts. Mortgages and car loans, where you can catch up on arrears and keep the collateral by continuing to pay.

• Unsecured debts. Credit cards, medical bills and personal loans, which may be paid in part, with remaining eligible balances discharged at the end.

Like Chapter 7, Chapter 13 doesn't clear everything. Child support, alimony, most student loans and recent taxes generally survive. Our guide on whether bankruptcy clears all debt explains the exceptions in detail.

What Are the Risks of Chapter 13?

Chapter 13 offers real protections, but it requires sustained commitment over years.

• Completion isn't guaranteed. According to the American Bankruptcy Institute, only about 40% of Chapter 13 filers complete their repayment plans, and rates vary by district and circumstances.

• Missed payments can end the case. If you fall behind on plan payments, the case can be dismissed, and you lose the automatic stay protecting you from collection and foreclosure. Our guide on what happens if you fall behind on Chapter 13 payments walks through your options to save your case.

• It's a long process. A three- to five-year commitment is far longer than Chapter 7's few months.

• It affects your credit. It helps to understand why credit scores drop so you can plan to rebuild.

• Refiling rules are complex. If your case is dismissed and you need to file again, the automatic stay in a repeat case may be shortened or may not apply at all depending on how recently a prior case was dismissed, so it's worth reviewing the timing with a bankruptcy attorney before you refile.

The most important safeguard is making sure your proposed monthly payment realistically fits your budget before you file. A plan that's too aggressive is one of the most common reasons cases fail.

How Chapter 13 Affects Your Credit

A Chapter 13 filing is a significant negative event on your credit, but it's typically removed from your credit report after seven years, sooner than Chapter 7's reporting window of up to 10 years. The impact lessens as the filing ages, and the on-time plan payments you make can help you start rebuilding even before your case ends.

Because payment history makes up about 35% of a FICO score and amounts owed makes up about 30%, staying current on your Chapter 13 payments and keeping any remaining revolving balances low can meaningfully support your recovery. Most filers start well below the good credit score range of 670 to 739 immediately after filing, but consistent, on-time payments and low balances do the heavy lifting once your case is complete. Tracking your progress with one of the best credit score apps can help you see how your habits move the needle over time.

Is Chapter 13 Right for You?

Chapter 13 tends to be the best fit when:

• You have regular income and want to keep your assets.

• You're behind on your mortgage and want to stop foreclosure.

• You have secured debts you want to catch up on.

• Your income is too high to qualify for Chapter 7.

• You have a co-signed debt and want to protect that person from collection.

• You want the shorter seven-year credit reporting window.

It may not be the right move if your income is unstable, your debt is mostly non-dischargeable or a non-bankruptcy path would work better. Before filing, it helps to know how long bankruptcy takes and to compare alternatives, including our breakdown of a debt management plan vs. bankruptcy and debt settlement. A nonprofit credit counselor or bankruptcy attorney can help you decide, since approval of your plan isn't guaranteed and depends on your specific income, debts and district.

Want to keep tabs on your finances? MoneyLion offers tools that can help you monitor your credit and understand your financial habits. Explore MoneyLion's personal loan requirements and debt consolidation options to learn more about rebuilding after your case ends.

Bottom Line

Chapter 13 bankruptcy lets people with regular income reorganize their debts into a court-approved repayment plan that lasts three to five years, depending largely on whether their income is above or below their state's median, while keeping their assets. It works by having you pay a trustee each month, who distributes the money to creditors, with remaining eligible balances discharged once you complete the plan. Its biggest advantages are the ability to stop foreclosure and catch up on a mortgage over time, and, uniquely among bankruptcy chapters, the potential to protect a co-signer from collection through the co-debtor stay. But it requires steady income, falls within set debt limits and demands a multi-year commitment that many filers don't complete. Before filing, make sure the plan fits your budget and consider talking with a nonprofit credit counselor or bankruptcy attorney.

Key Terms

• Chapter 13 bankruptcy: A reorganization bankruptcy for individuals with regular income that repays debt over three to five years while letting you keep your assets.

• Repayment plan: The court-approved schedule that determines how much you pay each month and how the money is distributed to creditors.

• Wage earner's plan: A common nickname for Chapter 13, reflecting that it's funded by the filer's regular income.

• Automatic stay: A court order that takes effect when you file, halting most collection actions, including foreclosure.

• Co-debtor stay: A protection unique to Chapter 13, under 11 U.S.C. § 1301, that can pause collection against someone who co-signed a personal debt with you while your case is active.

• Confirmation hearing: The court hearing where a judge reviews and approves your proposed repayment plan.

• Priority debt: Debt like recent taxes and child support that generally must be paid in full through a Chapter 13 plan.

• Means test: The income comparison used to help determine whether your Chapter 13 plan runs three or five years, based on how your income compares to your state's median for a similar household size.

• Discharge: The court order at the end of a completed plan that eliminates remaining eligible balances.

Summary generated by AI, verified by MoneyLion editors

Sources

• U.S. Courts: Chapter 13 Bankruptcy Basics

• U.S. Courts: Chapter 7 Bankruptcy Basics

• Federal Register: Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases (2025)

• U.S. Courts: Bankruptcy Court Miscellaneous Fee Schedule

• Cornell Legal Information Institute: 11 U.S.C. § 1301, Stay of Action Against Codebtor

• Consumer Financial Protection Bureau: Bankruptcy Resources

Summary generated by AI, verified by MoneyLion editors

FAQ

Here are quick answers to common questions about Chapter 13 bankruptcy:

How does Chapter 13 bankruptcy work? You file a petition with a proposed repayment plan after completing credit counseling, and an automatic stay immediately halts most collection actions. You begin making monthly payments to a trustee, attend a meeting of creditors and get your plan confirmed by a judge. After completing three to five years of payments and a debtor education course, the court discharges your remaining eligible debts.

Who qualifies for Chapter 13 bankruptcy? You generally need a regular income, current tax filings and debts within the legal limits. For cases filed between April 2025 and March 2028, the caps are $526,700 in unsecured debt and $1,580,125 in secured debt. Chapter 13 is only for individuals, including sole proprietors, not corporations or partnerships.

Can Chapter 13 stop a foreclosure? Yes. Filing triggers an automatic stay that immediately halts foreclosure, and the repayment plan lets you catch up on past-due mortgage payments over three to five years while staying current on ongoing payments. This is one of the main reasons homeowners behind on their mortgage choose Chapter 13 over Chapter 7.

Can Chapter 13 protect a co-signer on my debt? Often, yes. Under 11 U.S.C. § 1301, a provision unique to Chapter 13, creditors are generally barred from pursuing a co-signer, co-borrower or guarantor on a personal debt while your case is active, as long as your plan pays that debt in full. This protection doesn't apply to business debts or to co-signers that are companies rather than individuals.

How long does Chapter 13 stay on your credit report? A Chapter 13 is typically removed from your credit report after seven years from the filing date. That's shorter than Chapter 7, which can be reported for up to 10 years. The shorter window is one reason some filers choose Chapter 13 even when they might qualify for Chapter 7.