Chapter 13 Repayment Plan: How It Works and Who It Fits

What Chapter 13 Does That Chapter 7 Cannot

Chapter 13 is the US 'reorganization' bankruptcy for individuals with regular income. Instead of liquidating assets like Chapter 7, you propose a plan to repay some or all of your debts from future income over three to five years. Its defining advantage is that you keep your property — including non-exempt assets a Chapter 7 trustee would sell — as long as you pay unsecured creditors at least the value of that property over the plan. For homeowners with equity, this is often decisive.

The other signature benefit is curing arrears on secured debt. If you have fallen behind on your mortgage and a foreclosure is looming, filing Chapter 13 triggers an automatic stay that stops the sale, and the plan lets you spread the missed payments over its full term while you resume regular payments. The same mechanism can stop a vehicle repossession. This 'catch-up' power is unavailable in Chapter 7, which is why people trying to save a home usually file Chapter 13.

Eligibility, Plan Length, and Debt Limits

To use Chapter 13 you must be an individual (not a corporation) with regular income sufficient to fund a confirmable plan, and your debts must fall within statutory secured and unsecured debt limits, which are adjusted periodically. If your debts exceed those limits, Chapter 11 may be the alternative. Regular income is essential: without it, the court cannot confirm a plan and payments will fail, so irregular earners are often steered toward Chapter 7 instead.

Your plan length is set by your income. If your household income is below your state's median, the plan generally runs three years; if above median, it usually runs five. You pay your monthly disposable income to a Chapter 13 trustee, who distributes it to creditors according to priority — secured arrears and priority debts like recent taxes and support obligations get paid, while general unsecured creditors share whatever remains, sometimes receiving only a small fraction.

Completing the Plan and Getting a Discharge

You must begin making plan payments within about 30 days of filing, even before the court formally confirms the plan. Staying current is critical — missed payments can lead to dismissal, which removes the stay and exposes you to collection again. Many Chapter 13 cases fail not because the plan was unworkable but because life events disrupted payments, so building a realistic budget with your attorney at the outset matters enormously.

When you complete all plan payments and the required debtor-education course, the court discharges most remaining eligible unsecured debt. Some obligations survive — most student loans, domestic-support arrears, and certain taxes — but general unsecured balances left after the plan are wiped out. Because debt limits, median tables, and local practices change and vary, treat this tool as a starting assessment and have a bankruptcy attorney confirm the specifics and draft the plan.

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