What Is Chapter 13 Bankruptcy?
A plain-English guide to reorganization bankruptcy for debtors, attorneys, and VBA students.
The basics
Chapter 13 of the U.S. Bankruptcy Code is a reorganization bankruptcy. Rather than eliminating debts immediately, the debtor proposes a 3–5 year repayment plan and makes monthly payments to a Chapter 13 trustee, who distributes those payments to creditors according to the confirmed plan.
At the successful completion of the plan, remaining qualifying unsecured debts are discharged. Chapter 13 allows debtors to keep assets they would lose in Chapter 7 (such as a home with significant equity), catch up on mortgage arrears, reduce car loan balances to the vehicle’s current value, and pay off non-dischargeable debts like taxes through the plan.
Chapter 7 vs. Chapter 13 — Side by Side
| Chapter 7 | Chapter 13 | |
|---|---|---|
| Type | Liquidation | Reorganization |
| Duration | 4–6 months | 3–5 years |
| Repayment plan | None | Required |
| Means test | Required | Determines plan length |
| Save a home from foreclosure | No | Yes |
| Keep non-exempt assets | No | Yes (through plan) |
| Reduce car loan to vehicle value | No | Yes (cramdown) |
| Best for | High debt, low assets | Regular income, assets to protect |
Who uses Chapter 13?
- Homeowners facing foreclosure who want to save their home by catching up on mortgage arrears through the plan
- High-income debtors who don’t qualify for Chapter 7 under the means test
- Debtors with non-exempt assets they want to keep (home equity, vehicles, investments)
- Debtors with back taxes or domestic support obligations — these must be paid through the plan
- Prior Chapter 7 filers who cannot refile Chapter 7 for 8 years
The Chapter 13 plan
The heart of Chapter 13 is the repayment plan (Official Form 113). The plan specifies:
- Plan duration — 36 months (below-median income) or 60 months (above-median)
- Monthly payment to the trustee — based on disposable monthly income
- Secured creditor treatment — current payments, arrears catch-up, or surrender
- Priority creditor treatment — taxes and domestic support paid in full
- Unsecured creditor dividend — percentage paid to general unsecured creditors
The plan must be confirmed by the court. The Chapter 13 trustee and creditors can object to confirmation. A skilled petition preparer drafts the plan to meet confirmation requirements and minimize trustee objections.
The Chapter 13 petition package
Chapter 13 requires all of the same forms as Chapter 7, plus:
| Form | Title | Purpose |
|---|---|---|
| 113 | Chapter 13 Plan | The repayment plan — the core document |
| 122C-1 | Current Monthly Income | Determines plan length (36 vs. 60 months) |
| 122C-2 | Disposable Income | Required for above-median debtors |
| 106J-2 | Schedule J-2 | Expenses for separate households |