What Is Chapter 13 Bankruptcy and How Does It Work?

Filing Chapter 13 Bankruptcy

Chapter 13 allows debtors to repay all, or a significant portion, of their debts in 3-5 years under a court-approved plan. The most common debts discharged in a Chapter 13 proceeding are medical bills, credit card debt, and personal loans.

If the court accepts your repayment plan, creditors are forbidden to continue collection efforts. You also should get relief from collection agencies and their barrage of phone calls and letters.

To be clear: Chapter 13 is not what people typically think of when they think of bankruptcy. It isn’t wiping the slate clean and starting all over again. Unsecured debts such as alimony, child support, student loans, and taxes must be paid in full, and payments on obligations such as your house and your car must be kept current during your repayment period. And those financial obligations don’t go away at the end of the bankruptcy.

Chapter 13 is a repayment plan that a bankruptcy court trustee administers. Typically, a petitioner’s attorney creates a plan that allows payment of key debts over several years. At the end of that period, unsecured debts that remain unpaid are discharged.

Not surprisingly, there’s a process to go through as you file for Chapter 13.

The steps for filing Chapter 13 include:

• Credit counseling. There are two bankruptcy education courses required, both meant to keep you from a return trip to bankruptcy court in the future. The first is a pre-file credit counseling class that usually lasts about 60-90 minutes. It has to be completed within 180 days of filing and must be administered by a nonprofit agency approved by the U.S. Trustee Program. The second is a pre-discharge debtor education class before your bankruptcy is finalized.
• Filing the petition. It takes preparation, including gathering financial documents so you can list your assets, debts, income, and expenses. Pro tip: A bankruptcy lawyer can help considerably with this.
• Proposing the plan. It’s your responsibility to figure out how you’ll pay off your debts through Chapter 13. In most cases, your proposal has to be submitted within 14 days after you file the bankruptcy petition.
• Meeting of creditors. This has to happen within 40 days after you file. It allows the people to whom you owe money the opportunity to question you about your finances. It’s called a 341 meeting because it’s required by Section 341 of the U.S. Bankruptcy Code.
• Confirmation hearing. A judge will listen to any objections to your repayment plan from your creditors or the bankruptcy trustee. If changes are needed, they’re made at this stage. Once everyone agrees, the judge confirms your plan.
• Beginning payments. You must start making payments to the trustee within 30 days after filing for Chapter 13, even if your repayment plan hasn’t yet been confirmed.

We’ll get into more detail about these steps a little later.

Success Rate for Chapter 13 Bankruptcy

Precise numbers are difficult to pin down right now because of the pandemic’s effect on Chapter 13 filings and their outcomes, according to the American Bankruptcy Institute (ABI). But historical data suggests it’s fair to say there is at best a 50-50 chance that filing for Chapter 13 bankruptcy will be successful.

ABI’s research shows the number of filings dropped dramatically from 2019 (just under 300,000 nationally) to 2021 (a bit over 100,000). By 2024, Chapter 13 petitions were bouncing back (197,244) but not to pre-pandemic levels. From 2016 to 2019, an ABI study showed a 43.3% completion rate of Chapter 13 repayment plans. From 2021 to 2024, the completion rate was up to 50.4%.

That’s a significant difference and a promising trend, but it isn’t necessarily a reliable predictor. Because most dismissals of Chapter 13 petitions occur shortly after they’re filed, while completion of a successful Chapter 13 bankruptcy can take up to 5 years from the filing date, the pandemic-related fluctuation in Chapter 13 numbers likely will make determining a specific dependable success rate problematic until filing levels stabilize again.

“When we look at the outcomes from 2020-2024, they largely consist of dismissed cases filed post-pandemic and completed cases filed pre-pandemic,” says ABI’s Ed Flynn. “So, I think the safest thing to say is that the Chapter 13 case completion rate is in the 40-50% range.”

Why do so many Chapter 13 cases fail? The biggest reasons are obvious: The court can deny the proposed repayment plan, or the filer can’t keep up with the payments he or she agreed to make under the plan once it’s been confirmed.

But other missteps can derail a case, too. Bankruptcy requires strict adherence to court orders involving credit counseling, in-person court appearances, and complicated financial documentation, among other things, and non-compliance can torpedo a case. It’s important to keep an open line of communication with the court and with your bankruptcy attorney.

Bottom line: Chapter 13 isn’t a sure thing.

For that reason, it’s wise to explore other options, such as debt management, before you dive into the bankruptcy waters. Like Chapter 13, a debt management plan involves a repayment system, especially for credit card accounts. It consolidates several debts into one monthly payment at a lower interest rate than the cards carry. As Chapter 13 does, a debt management plan requires buy-in from your creditors, but it might be an easier lift for you than bankruptcy.

At the very start of your effort to get relief from your debts, it’s worth weighing the pros and cons of debt management vs. bankruptcy in the context of your specific financial issues.

Chapter 13 vs Chapter 7

Chapter 13 bankruptcy is often called the “wage earners” bankruptcy. A petitioner must have a regular income to enter a Chapter 13 debt repayment plan, so this form of bankruptcy is mostly beneficial to consumers with valuable assets and a regular source of income.

Chapter 7 bankruptcy is designed for those who truly can’t afford to repay their debts. It is, by far, the most common and most successful type of bankruptcy, with annual filings (and a success rate) that far outnumber Chapter 13. But to qualify for Chapter 7, you must earn less than the median income in your state for a family of your size. Filers who don’t pass that income “means test” can look to Chapter 13 instead.

In Chapter 13 bankruptcy, you retain your assets while extending repayment of debts over a 3-5-year period. Chapter 7 bankruptcies can be completed in 4-6 months, but your most valuable assets can be liquidated – except those that are exempt, such as your house and car — and turned over to a court-appointed bankruptcy trustee, who sells them and uses the proceeds to pay off creditors. The rest of the debt is discharged.

The primary differences, then, between Chapter 7 and Chapter 13 are:

• Income qualification criteria. If you make too much money, your Chapter 7 bankruptcy petition won’t be approved but you might be eligible to file Chapter 13.
• Property retention. In Chapter 13, your repayment plan allows you to keep all of your assets. In Chapter 7, any property not considered exempt is at risk of being sold to repay your creditors.
• Debt discharges. Most unsecured debts such as credit card balances, medical bills, personal loans, and utility bills are discharged in Chapter 7 within 4-6 months after the liquidation of non-exempt assets, assuming they’re valuable enough to be sold. Chapter 13 provides for the discharge of debts only after completion of the 3-5-year repayment plan, but it allows relief from a slightly wider range of debts than Chapter 7 does.
• Credit report ramifications. A Chapter 7 bankruptcy stays on your credit report for 10 years. A Chapter 13 bankruptcy appears on your credit report for seven years.

Because Chapter 7 cases generally only take 4-6 months from filing to completion, the success rates of Chapter 7 filings weren’t as de-stabilized by the pandemic as Chapter 13 cases were. ABI’s numbers from May of 2025 show that 93% of Chapter 7 bankruptcies filed in the last 10 years have been closed as no-asset cases, meaning the filers were able to keep all their property either through exemptions or because the bankruptcy trustee determined the filer’s assets weren’t valuable enough to be sold.

Pros of Chapter 13 Bankruptcy

• Chapter 13 is essentially a consolidation loan. You make one monthly payment to a court-appointed trustee, who then distributes the money to creditors.
• The amount of debt you can discharge is significant. The debt limits (they change every three years) as of April 1, 2025, are $1,580,125 in secured debt and $526,700 in unsecured debt.
• Creditors and debt collectors can’t contact you. They must go through the trustee instead.
• You can keep your property. Chapter 13 gives you time to pay off debts while you keep your existing assets.
• It protects you from foreclosure. If you fall behind on your mortgage, the Chapter 13 repayment plan will help you make up those payments and save your home.
• Some secured debts can be restructured. Car loans, for example, can be restructured and extended over the span of the Chapter 13 repayment plan.
• Chapter 13 preserves your co-signer relationships. A special provision protects co-signers from liability for your consumer debt, which is defined as something purchased primarily for a personal, family or household purpose.

Cons of Chapter 13 Bankruptcy

• It takes a long time. It can take up to five years to complete the process. Chapter 7 bankruptcy, by contrast, usually takes 4-6 months.
• Your spare cash can evaporate. The money that was once readily available for use at your disposal will be tied up in your debt repayment plan or in living expenses for the next 3-5 years.
• Your credit will be damaged. Chapter 13 stays on your credit report for seven years, which can all but ruin your ability to secure loans or buy things on a payment plan. However, Chapter 13 does slightly less damage than a Chapter 7 judgment, which remains on your credit report for 10 years.
• It isn’t cost-free. The federal filing fee is $313. The required credit counseling courses and debtor education courses cost money. The trustee gets a percentage of your monthly repayments. And the biggest cost is for the bankruptcy attorney you should hire to get you through the process. (It’s possible to do it on your own, but not advisable.)
• There are no guarantees. The success rate of Chapter 13 filings is, at best, 50%. You’ll be at risk of getting your bankruptcy dismissed if you miss payments or court appearances during the 3-5 years it takes to complete. If that happens, foreclosure and debt collectors can become a part of your life.
• Chapter 13 isn’t a cure– Financial obligations such as student loans, child support, alimony, most tax debts, and several other types of debt won’t be discharged. Neither will new debts you take on after you’ve filed, and your repayment plan has been approved.
• It limits future bankruptcy options. Declaring for Chapter 13 makes it more difficult to file for Chapter 7 in the future. You cannot declare for Chapter 7 if you have gone through Chapter 13 bankruptcy in the last six years.

Qualifications for Chapter 13 Bankruptcy

Individuals are eligible for Chapter 13 relief if their unsecured debts (credit cards, medical bills, etc.) are less than $526,700 and secured debts (home, car, property, etc.) are less than $1,580,125. Those amounts became effective in April 2025 and will remain in effect until April 2028.

Only individuals or husbands and wives who file jointly are eligible for Chapter 13 bankruptcy. Businesses aren’t. They must file under Chapter 11 bankruptcy or Chapter 7.

Those wishing to file for Chapter 13 must prove that they have enough regular income to manage a monthly repayment plan and that they filed state and federal income taxes for the previous four years.

You can’t file under Chapter 13, or any other chapter, if a previous bankruptcy petition was dismissed within the last 180 days because you failed to appear in court or comply with the orders of the court or if the petition was voluntarily dismissed by creditors. Nor can you file a Chapter 13 petition if you’ve used Chapter 7 within the last four years, and you can’t file for Chapter 13 again if you received a discharge from a previous Chapter 13 case that was filed less than two years earlier.

To get a Chapter 13 petition accepted, individuals must receive credit counseling from an EOUST-approved credit counseling agency, like InCharge Debt Solutions, at least 180 days prior to filing for Chapter 13. The EOUST is the executive office for United States Trustees.

There are exceptions in emergency situations or where the U.S. Trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

Chapter 13 Bankruptcy Process

Though it is possible to file bankruptcy yourself, the first step in the process should be to hire a bankruptcy lawyer. There are so many laws and exceptions involved that it pays to seek experienced professional help, even at the estimated $3,500-$5,000 it’ll cost you in attorney’s fees.

The Chapter 13 journey is complicated, as we’ll see next.

Whether you’ve hired an attorney this early or not, the first formal order of business is to complete the required credit counseling course within 180 days of when you intend to file. If you don’t have a Certificate of Credit Counseling from this short (an hour or so) session, your bankruptcy petition can be dismissed.

Next comes filing the petition, which will have to include a list of your creditors and the amount you owe them, the source of your income and how much you earn, the property you own, your living expenses, your most recent federal tax return, and the credit counseling course documentation. This is one of the few steps that doesn’t mandate an in-court appearance. You can do it in person, of course, but you can also file bankruptcy online if you’ve assembled all the relevant information.

Sometime in the two weeks after you file, you’ll be required to submit a proposed repayment plan. Your bankruptcy attorney will be invaluable at this stage. Using the information you gathered for the petition, your plan will need to include, among other things, whether you intend to repay your debts in three years or five years, how much you’ll commit to each creditor on a monthly basis, what you’ll have left over for living expenses and financial obligations beyond what the repayment plan requires, and how your plan measures up to something called the “best interest of creditors” test. That’s a part of Chapter 13 bankruptcy law that ensures the people to whom you owe money won’t be worse off than they’d be if they received proceeds of the liquidation of your assets under Chapter 7.

The next step is a mandatory meeting (the 341 meeting) with your creditors, which sounds worse than it usually is. You have to go; your creditors don’t, so often the only attendees are you and the trustee managing your bankruptcy. The judge won’t be there. But if either the trustee or interested creditors have questions about your proposed repayment plan, this is where and when you’ll have to answer them.

After the meeting of creditors, you’ll have a court appearance in which the judge will listen to any objections to your repayment plan, make whatever changes might be necessary, and then formally confirm the plan to give you the OK to move ahead.

Chances are, you’ll already be making payments to the trustee by this point, because that has to start within 30 days after you file your Chapter 13 bankruptcy petition.

Slog through those 3-5 years of the Chapter 13 process by keeping current with payments and completing the required debtor education class, and you’ll have reached the end. The court will enter a formal discharge that releases you from all the debts provided for by the plan and prohibits the creditors included in the plan from continuing or initiating any efforts to collect anything further from you.

Chapter 13 Bankruptcy Repayment Plan

Chapter 13 debtors create their own repayment plan, which must be written and submitted to the bankruptcy court at the outset of your case. The federal bankruptcy court provides a form for drafting a plan, or you can obtain one from a lower court in your area. The bankruptcy court must approve your plan for you to enter Chapter 13. The plan details your income, property, expenses, and debts and includes a proposed payment plan.

A trustee will be assigned to review your plan, assess its compliance with bankruptcy laws, collect your payments, and distribute them to creditors, and make sure all terms in your bankruptcy repayment plan are followed.

Your repayment plan will be divided into categories, which include:

• Priority Debts: These include truant alimony and child support; tax debts, including state and federal income taxes; wages, salaries, and commissions you owe to employees; and contributions you might owe to an employee benefit fund. You must pay 100% of these debts.
• Secured Debts: All secured debts in arrears must be fully repaid. These include mortgage defaults and missed car-loan payments. Any missed payments must be made current.
• Unsecured Debts: These are any debts that aren’t backed by collateral, including credit card balances, utility and medical bills, and personal loans. Your plan will require you pay from nothing to 100% of these obligations, depending on factors such as the value of your nonexempt property, the amount of uncommitted income that you will have each month that could be applied to your debts, and the duration of your plan.

Is Chapter 13 Bankruptcy Right for Me?

Entering bankruptcy is a major financial decision with consequences that can impact your creditworthiness for years. Though local, state, and federal government agencies can’t consider bankruptcy when deciding whether to hire you, private employers face no such restriction. Given the gravity of the decision, it pays to explore all options before filing a Chapter 13 bankruptcy petition.

Credit counseling is a good first step. Though bankruptcy might be the only sensible alternative in some cases, others with financial problems might discover that creating a debt management plan might be a better solution. Credit counseling can help there.

Everyone’s situation is different, so there isn’t a one-size-fits-all answer about the appropriateness of Chapter 13.

But here are some factors to weigh if you’re considering filing Chapter 13:

• Is your steady income enough to catch up with your debts over an extended period of time? Remember, it has to cover your living expenses, too.
• Do you make too much to qualify for Chapter 7 bankruptcy? Your chances of success are better with Chapter 7, but you’ll have to pass a means test to file for it.
• How much damage to your credit can you handle? Chapter 13 stays on your credit report for seven years.
• How close are you to foreclosure on your home or repossession of your car? If you’re way behind on your mortgage or car payments, Chapter 13 will protect those assets while you’re in the bankruptcy process.
• Are you drowning in tax debts, alimony, and/or child support obligations? They’re high priority debts. Unlike Chapter 7, Chapter 13 bankruptcy provides a way to get current with them by allowing you to include them in your repayment plan, though you’ll continue to be responsible for child support and alimony once you’ve completed the bankruptcy.
• Do you have any co-signers on your loans? If you do, your creditors won’t be able to go after them while you’re in the Chapter 13 process.
• Are you concerned about what people will think? It’s unfortunate, but bankruptcy of any kind can carry a stigma that might affect your reputation or self-image.

Take a hard look at the pros and cons of Chapter 13. Remember its advantages, such as the ability to keep your property, the high debt limits you can get discharged, and the opportunity to restructure some of your loans under the repayment plan. Measure them against the disadvantages, including the damage to your credit, the length of time you’ll be in the process, and the roughly 50-50 chance your bankruptcy will succeed.

Don’t be afraid to seek help as you ponder your dilemma. InCharge Debt Solutions, a nonprofit credit-counseling and debt management firm, offers a variety of services to help you make the best decision. If you decide bankruptcy is the best option for you, InCharge can help you through the process. It provides approved bankruptcy education courses and offers both pre-filing and pre-discharge bankruptcy education through its PersonalFinanceEducation.com website.

When Will My Debts Be Discharged?

Because Chapter 13 bankruptcies involve repayment plans over 3-5 years, it takes four years on average to discharge remaining debts.

Here’s how it happens. Sometimes, the court will require an in-person appearance for a discharge hearing. But that might not be necessary if all the paperwork is in place, in which case you will get a discharge notice in the mail a month or so after you’ve made the final payment and completed the debtor education class. The discharge notice notifies you and your creditors that you’ve met the repayment terms, and you’re released from the qualifying debts included in the plan. At that point, your creditors can no longer make any effort to collect for debts that have been discharged.

At the end of the process, the discharge should get you free and clear of unsecured debts such as credit cards, medical bills, and utilities even if your repayment plan only accounted for a fraction of what you owe on them.

Some debts, though, will remain your responsibility after you’ve finished Chapter 13, including student loans, recent taxes, child support, and alimony. Your repayment plan had you accounting for 100% repayment of those debts during the bankruptcy, and those obligations don’t go away after it.

The same is true of your primary mortgage. You are protected from foreclosure while you’re in Chapter 13, and your repayment plan will address the debt you accrued in arrears on your mortgage. But in most cases, your regular mortgage payments won’t be part of the repayment plan. You’ll be responsible for making them to your lender outside of the bankruptcy, along with whatever’s left on the balance after the bankruptcy ends.

In a situation in which you lose your job, you can try to have your plan modified. You need to inform your trustee of your financial situation before you miss payments, otherwise you risk having your case dismissed.

If a serious injury or illness occurs while enrolled in Chapter 13, you may qualify for a hardship discharge. That’s only the case if the hardship was beyond the debtor’s control, creditors received at least as much as they would under Chapter 7, and modifying the plan isn’t possible.

Life After Chapter 13 Bankruptcy

The hard part is over when you finally have the discharge notice in your hands. You no longer have to worry about the unsecured debts that plagued you pre-bankruptcy. After those long 3-5 years of sticking to a repayment plan and working with a bankruptcy trustee, you can finally take back control of your finances.

But you still have work to do. You’ll need to renovate your credit. You’ll need to keep current with bills that weren’t discharged under the repayment plan or are no longer being handled by the trustee. You’ll need to resist the temptation to take on new debt. You’ll need to set firm and realistic financial goals and create a budget that will help you meet them.

In other words, you’ll need to learn from the Chapter 13 experience, so you don’t find yourself in it again.

How long will it take to recover from bankruptcy? The biggest bugaboo likely will be your credit, because Chapter 13 bankruptcy appears on your credit report for seven years, starting in the month you filed your petition. That’s bad, but here’s a positive way to think about it: If it took you the full five years to finish the Chapter 13 process, you’ll only be living with its existence on your credit report for another two.

Here’s another glass-half-full thought: As time goes by during those seven years, your bankruptcy’s impact on your credit lessens and your credit score should gradually improve even before you complete the repayment plan.

Nonetheless, for as long as it stays on your credit report, the bankruptcy will continue to cause problems whenever you want or need to apply for a new loan or make a major purchase. Loans with better terms and interest rates will be hard to find, so it’ll be important to work on rebuilding your credit after the bankruptcy. You can do that by being diligent about making all your payments on time and minimizing how much of your credit you’re actually using. That’s called your credit utilization ratio, which should stay at about 30% or lower.

It might also be helpful to apply for a secured credit card, which requires a cash deposit up front that usually is the same amount as your credit limit and so insures the purchases you make with it. Because you won’t be able to charge more than the cash deposit with a secured card, it’s a useful tool for establishing – or re-establishing – your credit score.

Rebuilding your credit and sticking to a sensible financial plan are key to getting you back on your feet after Chapter 13. They’re also key to getting you into a new home, if that’s what you’re after, because finding a mortgage after bankruptcy is problematic. It can be done, but it takes time. Generally, mortgage lenders won’t deal with you for at least a year, and sometimes longer, after your Chapter 13 discharge notice because they want to make sure you’ve mended your debt-delinquent ways before they take a risk in fronting you enough money for a new home.

The bottom line: The sooner you stabilize your finances after you finish Chapter 13, the sooner you’ll be able to capitalize on the re-set the bankruptcy provided.

Online Bankruptcy

You can begin the bankruptcy process by filing online and connecting with an attorney for guidance. Learn when to choose online bankruptcy and how to file.

Chapter 7 Bankruptcy

Chapter 7 bankruptcies are designed to liquidate the debtor’s assets. All property, except that which a petitioner is allowed to keep, is turned over to a bankruptcy trustee who disburses the debtor’s funds to creditors in an effort to repay part of the debts that are owed.

Bankruptcy Education Courses

InCharge Debt Solutions offers bankruptcy educational courses approved by the U.S. Trustees with Bankruptcy Code-compliant certificates issued upon completion. If you file for bankruptcy, you must complete both a pre-filing bankruptcy counseling session and a pre-discharge bankruptcy counseling session.