What is Chapter 13 Bankruptcy and How It Can Save Your Home

If you’re drowning in debt but want to keep your home and valuable possessions, Chapter 13 might be for you. This “wage earner’s plan” lets you create a payment plan over 3-5 years and then some debts may be forgiven. We have updated our guide with the 2024-2025 rules and debt limits, eligibility requirements, a simple step by step filing process and how attorneys can help you through this process.

Beyond the technical details—like income requirements, types of debt and filing procedures—we also give you practical advice. We will help you understand the potential pitfalls, how to rebuild your credit afterward and how to avoid mistakes that can hurt your case. Whether you are just learning about Chapter 13 or looking for an update— we hope this guide helps you understand how this type of bankruptcy works and if it’s right for you.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a legal process to reorganize your debt under the United States Bankruptcy Code when you have income but are struggling to pay. Think of it as a reset button on your finances while you take responsibility for what you owe.

Your plan will run for 3-5 years based on what you can afford each month. The best part? You can save your home from foreclosure and your car from being repossessed during this time.

Instead of dealing with multiple creditors hounding you for payments you can’t make, Chapter 13 combines everything into one monthly payment. A bankruptcy trustee helps oversee the process to make sure everything goes smoothly.

You will pay less than what creditors would normally demand based on what fits your actual budget. And when you complete your plan, any unsecured debt (credit cards) can be forgiven entirely. This is especially helpful if you have a steady income but just need some breathing room to get back on your feet.

How Chapter 13 Bankruptcy Can Help You

Keep Your Home and Car

One of the main reasons people choose Chapter 13 is you can keep your important property. Unlike Chapter 7 where you may have to sell some of your stuff to pay creditors—Chapter 13 lets you catch up on missed mortgage or car payments over time. As long as you stick to the new payment plan—you can stop foreclosure on your home or keep your car from being repossessed.

Know more: 11 U.S.C. § 1322(b)(5) (explains how you can address mortgage arrears within your repayment plan).

Stop Collection Calls and Harassment

As soon as you file for Chapter 13—something cool happens - an (automatic stay) goes into effect. This legal protection makes most collection efforts stop. No more stressful phone calls, threatening letters, lawsuits, wage garnishments or ongoing foreclosure proceedings. You get some breathing room to get your finances back on track.

Know more: 11 U.S.C. § 362(a) for details on the scope of the automatic stay.

Simplify Your Monthly Bills

Imagine having one monthly payment instead of juggling many different bills with different due dates and interest rates. With Chapter 13—all your qualifying debts are combined into one payment you make to a trustee—who then pays your creditors according to your court-approved plan. This helps reduce your stress and makes managing your finances a breeze.

Get Fair Treatment Through Court Supervision

Your Chapter 13 plan is overseen by the bankruptcy court—so the terms are fair to you and your creditors. A trustee makes sure everyone follows the rules - you make your payments and creditors get what they are owed under your plan. If any disputes come up—the court will resolve them.

Start Fresh After You Complete Your Plan

After you complete your 3-5 year plan any remaining eligible unsecured debts (credit cards, medical bills, personal loans) may be wiped out. This discharge gives you a fresh start and a chance to rebuild your life debt free.

Are You Eligible for Chapter 13 bankruptcy?

You Need a Steady Income

To qualify for Chapter 13—you need money coming in every month. This doesn’t have to be a job - self-employment, social security, retirement income or other regular income. Just show the court you can pay your basic living expenses and your bankruptcy payment each month.

Your Debts Must Be Under a Certain Amount

In 2024-2025 you can have up to $2,750,000 in total debt and still qualify. This total includes both secured debt (mortgages and car loans) and unsecured debt (credit cards and medical bills). If your debt is over this amount—you may need to look into Chapter 11, which is used by businesses or individuals with very high debt.

Your Tax Returns Must Be Up to Date

You will need to have filed your tax returns for the past 4 years. If you haven’t filed any— you will need to do so before you file or shortly after. Not having your tax filings up to date will get your case dismissed.

Know more: 11 U.S.C. § 1308 describes the requirement for filing tax returns.

Previous Bankruptcies May Affect Your Options

If you have received a Chapter 13 discharge in the last 2 years or a discharge under Chapter 7, 11 or 12 in the last 4 years—you may not be eligible to discharge right now. You can still file Chapter 13 to get protection from creditors but you may not be able to have your remaining debt wiped out at the end of your plan.

Credit Counseling Is Required

Before you file—you must complete a credit counseling course with an approved nonprofit agency within 180 days of your filing date. This course helps you understand all your options and makes sure you have explored alternatives to bankruptcy. You will receive a certificate after you complete this course which you will include with your bankruptcy papers.

Know more: U.S. Department of Justice website.

Your Chapter 13 Bankruptcy Filing Guide

Before You File

• Complete Credit Counseling: Take the course and keep your certificate.
• Talk with an attorney: This is not required but helpful to avoid mistakes and make the process smoother. They’ll guide you through paperwork, creditors and court procedures.
• Gather Your Docs: Collect all your financial paperwork—including recent pay stubs, bank statements, tax returns from the past 4 years and details about all your debts. Also make a list of your monthly expenses.

Filing Your Papers

When you’re ready to file Chapter 13, you will submit these forms to your local bankruptcy court:

• Your bankruptcy petition
• Lists of your assets and debts
• Income and expense information
• Statement of your financial situation
• Your Chapter 13 plan shows how you’ll pay off each type of debt

Once you file—something wonderful happens - the (automatic stay) kicks in and creditors can’t call, write or take any collection action against you.

For official forms: see U.S. Courts Bankruptcy Forms.

Working with Your Trustee

The court will assign a trustee to your case. This person will:

• Review your plan
• Check your docs
• Be a go-between for you and your creditors

Your trustee will schedule a 341 meeting (also called creditors meeting) within 3-7 weeks of filing.

The 341 Meeting

You will answer questions under oath about your finances and plan. It usually takes less than an hour and your attorney can be there with you if you have one. Creditors can attend and ask questions but often don’t show up.

Know more: 11 U.S.C. § 341 covers the official meeting of creditors.

Getting Your Plan Approved

Within 45 days of the 341 meeting—a judge will review your plan at a confirmation hearing. If your plan is reasonable and follows the bankruptcy rules—the judge will approve it. If there are issues—you can make changes based on feedback from the trustee or creditors.

Making Your Payments

You will need to start making payments to the trustee within 30 days of filing even before your plan is approved. Once your plan is confirmed—the trustee will send those payments to your creditors.

Staying on Track

During your 3-5 year plan:

• Make all your plan payments on time
• Pay ongoing bills like mortgage payments
• Stay in touch with your attorney and trustee if your situation changes. Don’t miss it!

Your Chapter 13 Repayment Plan

How Long Will My Plan Be?

The length of your repayment period depends on your income. If your household income is below your state’s median income for a family your size—you will likely have a 3-year (36-month) plan. If your income exceeds your state’s median—you will have a 5-year (60-month) plan.

Know more: Check your state’s median income figures: (U.S. Trustee Program Means Testing) to confirm which term you may be facing.

Debts That Must be Paid in Full

Some debts, called “priority debts” can’t be reduced and must be paid in full through your plan. These are usually most tax debts, child support or alimony you are behind on and certain government fines or penalties.

How My Home and Car Loans are Handled

For secured debts like mortgages and car loans—you will continue to make your regular monthly payments and use your Chapter 13 plan to pay back the missed payments over time. This way—you can keep your home and car and get back on your feet financially.

Credit Cards and Other Unsecured Debts

The good news about unsecured debts (credit cards, medical bills, personal loans) is you only pay a portion of what you owe. The amount depends on how much is left after paying necessities and the value of property not exempt. When you complete your plan, the remaining balances on these debts are forgiven.

Figuring Out Your Monthly Payment

Your Chapter 13 payment is based on your "disposable income" - what's left after paying for reasonable living expenses like housing, utilities, food, transportation and healthcare. The court reviews this calculation to make sure it's fair to you and your creditors so you get a fresh start and pay what you can afford.

Know more: Chapter 13 Calculation of Your Disposable Income

How a Bankruptcy Attorney Helps With Chapter 13

Guiding You Through the Rules

Chapter 13 bankruptcy has a lot of rules and deadlines. A good attorney makes sure all your paperwork is filled out right and filed on time to prevent your case from being dismissed. They can also talk to creditors who disagree with your plan to save you stress and headaches.

By Your Side During Court Appearances

Your attorney will be with you at the creditors’ meeting and the hearing where your plan is approved. They’ll answer questions, respond to objections and speak up for what you need. This is especially helpful if creditors or the trustee bring up tough issues about your case.

Helping You Avoid Mistakes

Even small mistakes—like missing a creditor or missing a deadline—can cause big problems with your bankruptcy. Attorneys know the common pitfalls and how to avoid them so your path to plan approval is much smoother.

By Your Side After Your Plan Is Approved

Life doesn’t stop after your bankruptcy plan is approved. If you lose your job or have unexpected medical expenses your attorney can help you modify your plan. They can adjust your payments or sometimes even the length of your plan when hardships occur.

Moving Forward After Chapter 13

Freedom From Your Debts

When you complete your repayment plan—the court will issue your discharge order, wiping out your remaining unsecured debts. This big milestone gets you out of collection calls and past-due notices and really gives you a fresh start.

Rebuilding Your Credit Step by Step

Chapter 13 stays on your credit report for up to 7 years from filing but many people see their credit scores improve as they make payments during their plan. You can speed up your credit recovery by getting a secured credit card and using it responsibly—checking your credit reports to make sure discharged debts show a zero balance and paying all your regular bills on time.

Creating a Safety Net

One of the biggest lessons from bankruptcy is how important savings are. Even setting aside a small amount each month can get you out of new debt when unexpected expenses come up. Try to build an emergency fund with 3-6 months of basic living expenses in a separate savings account.

Managing Your Money Better

Completing Chapter 13 is the perfect time to take a closer look at your spending habits. Many people find that living on a payment plan during bankruptcy helps them develop better money habits. Consider making a monthly budget that puts necessities first, sets realistic limits on discretionary spending and has automatic transfers to savings.

Avoid Common Mistakes in Chapter 13 Bankruptcy

Staying Current on Your Payments

The biggest mistake in a Chapter 13 case is missing your plan payments. Once your plan is confirmed—you must make every payment on time. If you encounter unexpected financial setbacks, don’t just skip payments – call your attorney right away. They can help you figure out options to modify your plan based on your new situation.

Being Smart About New Debt

Taking on new debt during your Chapter 13 plan is generally not a good idea. Any major purchase usually needs approval from your trustee and sometimes the court. New debt can stretch your budget too thin and may cause your bankruptcy case to fail.

Being Truthful

Honesty is key in bankruptcy. If you hide assets—don’t tell the truth about what they’re worth or leave creditors off your list, you could be in big trouble. Your case could be dismissed or worse, you could be charged with bankruptcy fraud.

Making Your Regular Payments

While your Chapter 13 plan gets you caught up on past-due mortgage or car payments from before you filed—you still need to make your current payments on those loans. Many people think the plan covers all future payments—too, but it doesn’t.

Keeping Up on Your Taxes

You must stay current on your taxes throughout the repayment period. Make sure you file your federal and state tax returns on time each year. Your trustee may request proof you filed and paid your taxes—so keep good records.

Common Questions About Chapter 13 Bankruptcy

Can I File Chapter 13 If I’m Self-Employed?

Yes! You can definitely file Chapter 13 if you work for yourself. As long as you can show you have regular income coming in (through client payments, contracts or other steady revenue)—you can create a workable payment plan. Just make sure to keep detailed records of your business expenses as these will help determine how much you can afford to pay each month.

What If My Income Changes During My Plan?

If your income goes up significantly during your plan—your trustee or creditors might ask the court to increase your payments so you can pay more towards your debts. On the other hand—if your income drops due to circumstances beyond your control, you can ask the court to lower your payments or even extend your plan. Just communicate any big changes to your income through your attorney.

How Long Will Chapter 13 Affect My Credit?

Chapter 13 stays on your credit report for up to 7 years from when you filed. The good news is that its impact on your credit score will decrease over time—especially as you make on-time payments during and after your bankruptcy.

Will All My Debts Be Eliminated?

Some debts can’t be wiped out through Chapter 13 (like child support, alimony, most student loans and certain tax debts). These priority debts must be paid in full through your plan. But after you complete your plan—most unsecured debts (like credit cards and medical bills) will be discharged and you will get a fresh start.

How Much Does It Cost To File?

The current filing fee for Chapter 13 is $313 ($235 filing fee plus $78 administrative fee)—though these fees can change, so check your local bankruptcy court’s website. Attorney fees vary depending on your location and case complexity. Still—many bankruptcy lawyers offer payment plans or fixed fee arrangements to make their services more affordable during this tough time.

Comparing Chapter 13 to Other Bankruptcy Options

Chapter 7 (Liquidation Bankruptcy)

Chapter 7 is called (straight bankruptcy) because it’s quick. Instead of making payments over several years—some of your property might be sold to pay creditors and most of your remaining unsecured debts are discharged in 3-6 months.

The downside? You could lose property if you have valuable items that aren’t protected by exemptions. If your household income is above your state’s median income—you might not be able to file Chapter 7 at all.

Chapter 11 (Reorganization for Higher Debts)

If your debts are too high for Chapter 13’s limits—Chapter 11 might be an option. Although mainly used by businesses, individuals can file Chapter 11 too.

Be aware that Chapter 11 is usually more expensive and complicated than Chapter 13. You will likely have more direct negotiations with creditors and the process will take longer.

Chapter 12 (For Farmers and Fishermen)

This special type of bankruptcy was created just for family farmers and fishermen who earn regular income from their farming or fishing operations.

While Chapter 12 works similarly to Chapter 13 in many ways—it’s only available to people who meet specific requirements related to their farming or fishing business and income levels.

Wrapping Up Your Chapter 13 Journey

Finish Your Financial Education Course

Before your debts can be discharged—you will need to take a debtor education course from an approved provider. This is different from the credit counseling you did before filing for bankruptcy. This course will help you improve your money management skills for the future.

Stay on Top of it

Throughout your repayment plan—keep track of all your payment due dates and court deadlines. Open any mail from your trustee or attorney right away – ignoring these will cause problems with your case.

Check Your Credit Reports

After you complete your Chapter 13 plan—make it a habit to check your credit reports to ensure they are accurate. Check that all your discharged debts show zero balances. If you see any errors—contact the credit bureaus right away to get them fixed.

Celebrate Your Success

Making it through your payment plan is a big deal – you should celebrate. Take a moment to acknowledge how far you have come and the discipline you have developed. Then set new money goals that build on your fresh start and secure your financial future.

The Bottom Line

Filing Chapter 13 isn’t easy but it can be a lifeline when you are drowning in debt but have a steady income. It lets you keep your home and car and create a path forward. Though it takes commitment – 3-5 years of structured payments – completing your plan will get you discharged debts and valuable financial skills.

With the right guidance from an attorney and your own determination—Chapter 13 can turn a hopeless financial situation into a fresh start. Remember—bankruptcy isn’t failure – it’s a legal tool to help good people in bad times and millions have used it to rebuild their financial lives.