Chapter 13 Consumer Bankruptcy (Debt Adjustment)
Chapter 13 bankruptcy — formally called "adjustment of debts of an individual with regular income" — lets you keep your assets while repaying debts over 3-5 years through a court-approved plan, instead of liquidating like Chapter 7. It's the bankruptcy option of choice for people who have significant assets to protect (like a home with equity), are behind on mortgage payments and want to catch up, or have debts that aren't dischargeable in Chapter 7 (like certain tax obligations). You must have regular income, unsecured debts below $526,700, and secured debts below $1,580,125 (effective April 1, 2025 through March 31, 2028). The critical tool Chapter 13 provides that Chapter 7 doesn't: you can cure mortgage arrears through your repayment plan and keep your home — meaning someone 6 months behind on their mortgage can stop a foreclosure and repay the arrears over 5 years. Priority debts (recent taxes, child support, alimony) must be paid in full through the plan. After completing all plan payments, remaining eligible debts are discharged. About 280,000 Americans file Chapter 13 annually, though filings declined sharply during COVID and have recovered gradually.
Current Law (2026)
| Parameter | Value |
|---|---|
| Core statute | Bankruptcy Code, Chapter 13 — Adjustment of Debts of an Individual with Regular Income, 11 U.S.C. §§ 1301-1330 |
| Eligibility | Individuals with regular income; unsecured debts <$526,700 and secured debts <$1,580,125 (effective April 1, 2025–March 31, 2028) |
| Plan duration | 3 years (below-median income) to 5 years (above-median income) |
| Filing fee | $313 |
| Automatic stay | Immediate protection from creditors upon filing; extends to co-debtors on consumer debts |
| Discharge | After all plan payments completed; broader discharge than Chapter 7 |
| Mortgage treatment | Cannot modify primary residence mortgage terms, but can cure arrears through the plan |
| Priority debts | Tax debts, domestic support obligations must be paid in full |
Legal Authority
- 11 U.S.C. § 1301 — Co-debtor stay (automatic stay extends to co-signers and co-debtors on consumer debts — a protection unique to Chapter 13 that shields family members who co-signed loans)
- 11 U.S.C. § 1322 — Contents of plan (plan must provide for full payment of priority claims; may modify rights of secured and unsecured creditors except the primary residence mortgage; must commit all disposable income to the plan for the applicable commitment period)
- 11 U.S.C. § 1325 — Confirmation of plan (court confirms if: plan was proposed in good faith; unsecured creditors receive at least as much as they would in Chapter 7 liquidation; debtor can make all payments; all disposable income is committed for the applicable period)
- 11 U.S.C. § 1328 — Discharge (after completing all plan payments, remaining eligible unsecured debts are discharged; "hardship discharge" available if debtor cannot complete plan due to circumstances beyond their control)
How It Works
Chapter 13 is the "wage earner's plan" — a bankruptcy option (administered through U.S. Bankruptcy Courts) that lets individuals with regular income keep their property while repaying debts over 3-5 years through a court-supervised repayment plan. It's the primary alternative to Chapter 7 liquidation for consumers who have income but can't pay their debts in full.
Chapter 13's central advantage over Chapter 7 is that debtors keep all their property — there is no liquidation. Homeowners facing foreclosure can cure arrears over the life of the plan while maintaining current mortgage payments, and Chapter 13 can strip off wholly unsecured junior liens if the home's value is below the first mortgage balance. The co-debtor stay (§ 1301) also protects family members who co-signed consumer debts, a protection that doesn't exist in Chapter 7. The debtor proposes a plan within 14 days of filing specifying how debts will be paid: all priority debts (recent taxes, domestic support obligations) in full; secured creditors at least the value of their collateral; and a commitment of all disposable income to the plan for the "applicable commitment period." The Chapter 13 trustee collects payments — typically through payroll deduction — and distributes them to creditors according to the plan. Unsecured creditors must receive at least as much as they'd get in a Chapter 7 liquidation (the "best interests" test).
The 2005 BAPCPA amendments introduced the means test, which determines both eligibility and plan duration. Above-median-income debtors must commit projected disposable income for five years, with disposable income calculated by subtracting IRS standard expenses (and some actual expenses) from current monthly income — a formula that sets the floor for unsecured creditor payment. Below-median-income debtors can propose a three-year plan using actual income and expenses. Chapter 13's most powerful practical feature is its ability to save homes from foreclosure: while the plan cannot modify the terms of a primary residence mortgage (§ 1322(b)(2) — interest rate, principal, and maturity date stay fixed), it can cure arrears by spreading past-due amounts over the plan duration. If you're $24,000 behind on your mortgage, a 60-month plan adds roughly $400/month to cure the arrears alongside current mortgage payments. For investment properties and second homes, unlike primary residences, Chapter 13 can reduce the principal to current market value ("cramdown") and modify interest rates.
How It Affects You
If you're behind on your mortgage and facing foreclosure: Chapter 13 is the strongest legal tool to stop foreclosure and save your home — it's one of the few mechanisms that allows you to catch up on arrears over time without losing the property. The moment you file, the automatic stay halts all collection actions, including foreclosure sales. Through your Chapter 13 plan, you spread the past-due mortgage amount over 3-5 years while simultaneously making current mortgage payments going forward. So if you're $24,000 behind on your mortgage, your plan might include approximately $400/month to cure the arrears over 60 months, on top of your regular mortgage payment. The math must work — you need income sufficient to cover current mortgage payments plus the plan payment — but for homeowners who have experienced a temporary income disruption rather than a permanent one, Chapter 13 can be transformative. Note: Chapter 13 cannot modify the terms of a primary residence mortgage (the anti-modification rule of § 1322(b)(2)) — if your original interest rate is 7%, it stays 7%. But for investment properties and second homes, Chapter 13 can reduce the principal to current market value ("cramdown") and modify interest rates.
If you have regular income but overwhelming debt: Chapter 13 makes sense over Chapter 7 when you have significant assets to protect (home equity, retirement savings above exemption limits, non-exempt property), income too high to pass the Chapter 7 means test, or debts that won't discharge in Chapter 7 (certain taxes, student loans through adversary proceeding, domestic support). Eligibility requires unsecured debts below $526,700 and secured debts below $1,580,125 (effective April 1, 2025 through March 31, 2028). If your income is above your state's median income for your household size, your plan runs 5 years and you must commit all disposable income (income minus allowed expenses under IRS standards) to the plan. Below-median debtors can propose a 3-year plan. The filing fee is $313, plus attorney fees that typically run $3,000-$5,000 for a consumer Chapter 13 — higher in complex cases. Most attorneys offer payment plans. You'll make a single monthly payment to the Chapter 13 trustee, who distributes it to creditors; payment is typically set up as automatic payroll deduction. The 341 meeting (creditor meeting) is typically held 21-50 days after filing; it's brief (10-15 minutes) and most creditors don't attend. After you complete all plan payments, remaining eligible unsecured debts are discharged.
If you co-signed a loan for a family member filing Chapter 13: The co-debtor stay (11 U.S.C. § 1301) protects you — a co-signer — from collection on consumer debts while the Chapter 13 case is active. If your family member files Chapter 13 on a car loan or credit card you co-signed, the creditor cannot pursue you for that debt while the plan is ongoing. This protection doesn't exist in Chapter 7. The protection holds as long as the plan is in effect and the debtor is making plan payments — if the case is dismissed or converted to Chapter 7, the co-debtor stay lifts and you become liable again. If the plan pays the co-signed debt in full, you're protected completely. If only partially paid, the creditor can pursue you for the unpaid balance after the discharge.
If you're a creditor receiving a Chapter 13 plan notice: You'll receive a notice of the proposed repayment plan by mail. You have the right to object to confirmation if the plan doesn't meet legal requirements — specifically, it must be proposed in good faith, pay priority creditors in full, pay secured creditors at least the current value of their collateral, commit all disposable income to the plan, and pay unsecured creditors at least what they'd receive in a Chapter 7 liquidation (the "best interests of creditors" test). File your proof of claim with the bankruptcy court before the claims deadline (typically 70 days from the 341 meeting) — unsecured creditors who don't file a timely proof of claim generally receive nothing under the plan. Secured creditors should carefully review whether the plan values their collateral correctly; if a vehicle or property is being "crammed down," you can object if the valuation is incorrect.
State Variations
- Bankruptcy is exclusively federal law, but state exemption laws affect what property debtors can protect
- Some states allow debtors to choose between state and federal exemption schemes; others require state exemptions
- State homestead exemptions vary enormously — from unlimited (Florida, Texas) to modest amounts
- State median income figures determine whether the 3-year or 5-year commitment period applies
- Local bankruptcy court rules and trustee practices vary by district
Implementing Regulations
Chapter 13 is governed by 11 U.S.C. §§ 1301–1330 and the Federal Rules of Bankruptcy Procedure. The means test and repayment plan calculations follow BAPCPA statutory formulas. Administered by bankruptcy courts under 28 CFR Part 58 (U.S. Trustee Program, including standing trustee appointment and compensation).
Pending Legislation
- S 3977 — Raise small-business Chapter 11 cap to $7.5M, cap Chapter 13 at $2.75M. Status: Introduced.
- HR 7730 — Same provisions: raise Chapter 11 to $7.5M, set Chapter 13 limit at $2.75M. Status: In committee.
Recent Developments
- Chapter 13 filing rates have fluctuated with economic conditions — filings declined during COVID-19 stimulus but have increased as pandemic relief expired
- The Bankruptcy Threshold Adjustment and Technical Corrections Act periodically adjusts debt limits for Chapter 13 eligibility
- Courts continue to address whether student loans can be discharged in Chapter 13 through adversary proceedings, with an evolving landscape
- Remote 341 meetings (creditor meetings) adopted during COVID-19 have become permanent in many districts
- Mortgage modification mediation programs within bankruptcy have expanded in several districts