Keep Your Home and Catch Up with Chapter 13

Reasons for filing under Chapter 13

Chapter 13 bankruptcy provides a way for individuals and couples to reorganize their debts and repay a percentage of those balances through an approved plan that lasts between 3 to 5 years. You must have a regular income, and your plan payments are based on your disposable income (taking into account your necessary living expenses). At the completion of the plan (or, in some cases, earlier) the remaining amount of unsecured debt is discharged (e.g., credit cards and medical bills are discharged, but alimony and child support obligations continue).

There are several differences between Chapter 13 and Chapter 7. Some of the potential advantages provided by Chapter 13 are:

• Stop Foreclosure. Chapter 13 allows you to stop foreclosure proceedings immediately through an automatic stay and offers a court-approved plan to cure your past-due mortgage payments over a 3 to 5 year period. In Chapter 7, foreclosure can only be temporarily halted.
• Catch Up on Payments. Chapter 13 allows secured debts to be restructured. Secured debts like car and auto loans can be stripped down to a lower value, the maturity date can be changed to coincide with the plan term to lower monthly payments, and the interest rate can be modified to a lower rate in most situations (although other rules and/or exceptions apply to most home mortgages and certain purchase money security interests). These are benefits that usually cannot be realized in Chapter 7, when the only options may be to surrender the collateral, redeem the collateral by paying the secured claim in full, or live with the existing terms and payments by reaffirmation or ride-through.
• If Your Income Is Too High for Chapter 7. If your income is too high to qualify for Chapter 7, then Chapter 13 may be your only bankruptcy option. Chapter 13 has no upper income limits but does have upper debt limits of $526,700 for total unsecured debts and $1,580,125 for total secured debts. If most of your debts are business-related and/or non-consumer in nature (e.g., from investing or gambling), then you may still qualify for a Chapter 11 or Chapter 7 bankruptcy even with a higher income.
• Keep Your Assets (Non-Exempt Property). Chapter 13 allows individuals to keep their nonexempt property. In Chapter 7, you must turn over non-exempt property to the trustee for liquidation and distribution to creditors. The tradeoff for this benefit is that in a Chapter 13 you must usually pay unsecured creditors more than they would receive in a hypothetical Chapter 7 liquidation, and you must pay unsecured creditors based on your “projected disposable income” during the term of the plan.
• Protect Co-Signers. Chapter 13 can also protect third parties who are also liable for your consumer debts (like friends and family who co-signed a loan for you), but you must make all your plan payments on time and in the correct amounts.
• Eligibility for a Discharge. Many people who would not qualify for Chapter 7 or a Chapter 7 discharge do qualify for Chapter 13 and a Chapter 13 discharge.
• Discharge of Certain Debts. Chapter 13 can discharge certain debts that are not dischargeable under Chapter 7, including certain tax obligations, debts for willful and malicious injury to property, and debts arising from property settlements in divorce or separation proceedings (but not alimony or child support).

Frequently asked questions

Am I eligible for Chapter 13?

• Individuals and Sole Proprietors: Only individuals and married couples can file; business entities like LLCs or corporations are ineligible. Sole proprietors and owners of single-member LLCs can include both business and personal debts. If you have business debts (from a corporation) that you are personally liable for, you can discharge your liability in a Chapter 13, but your business would still be liable (unless you also file a Chapter 7 for your business or a Chapter 11 for your business and yourself as an owner).
• Debt Limits: You are eligible if your unsecured debts are under $526,700 and secured debts are under $1,580,125 (for cases filed between April 1, 2025, and March 31, 2028).
• Regular Income: You must prove you have a stable source of income, such as wages, self-employment, Social Security, or pension benefits, sufficient to fund the monthly payments.
• Previous Filing: You must wait at least two years after a prior Chapter 13 discharge or four years after a Chapter 7 discharge to file a Chapter 13 again.

What about the Chapter 13 repayment plan?

• Duration: Plans typically last three years if your income is below the state median, or five years if it is above.
• Monthly Payment Amount: You must commit all “disposable income,” which is your total income minus reasonably necessary living expenses.
• First Payment: You must begin making payments to the trustee within 30 days of filing your petition, even if the court has not yet confirmed your plan.
• “Priority” Status for Some Debts: “Priority debts,” such as child support, alimony, and your most recent tax obligations, must generally be paid in full.

What happens if I miss a payment?

The trustee may file a motion to dismiss your case. You may be able to modify the plan if you face a financial hardship, like job loss or medical issues.

What is a “Hardship Discharge”?

If circumstances beyond your control prevent you from completing the plan, the court may grant a discharge if creditors have already received as much as they would have in a Chapter 7 liquidation.