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