Chapter 13 Bankruptcy

A reorganization bankruptcy for individuals with regular income: debts are repaid in part through a court-approved plan.

Looking for a lawyer rather than a definition? Skip to the state-by-state list of law firms for this.

What it means

Chapter 13 restructures rather than liquidates. An individual with regular income proposes a repayment plan, makes payments to a trustee who distributes them to creditors, and receives a discharge of qualifying remaining balances on completing the plan.

The reason people choose it over Chapter 7 is usually property. Chapter 13 provides a mechanism to cure mortgage arrears over time while keeping the home, and it does not require surrendering non-exempt property, because creditors are being paid through the plan instead. It is also the route available to people whose income is too high to qualify for Chapter 7.

The commitment is real: plans run for years, and the discharge generally arrives only on completion. A plan that cannot realistically be sustained is a common failure mode, and cases that fall out of plan can end without the relief sought.

Two features have no Chapter 7 counterpart. The co-debtor stay protects someone who co-signed a consumer debt with the debtor, such as a relative on a car loan, from collection while the case is open, unless the court lifts it (11 U.S.C. § 1301). And the plan has minimum payment tests: priority claims, such as most recent tax debts and domestic support obligations, generally have to be paid in full over the life of the plan (§ 1322(a)(2)). Unsecured creditors must receive at least what they would have received in a Chapter 7 liquidation (§ 1325(a)(4)). If the trustee or an unsecured creditor objects, the plan must also commit all of the debtor's projected disposable income for the plan period (§ 1325(b)(1)).

Where this comes from

When people hire a lawyer for this

Chapter 13 plans are drafted documents that must satisfy statutory tests and be confirmed by the court, and the choice between Chapter 7 and Chapter 13 is a genuine analysis rather than a preference. This is one of the least practical areas to approach without advice.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

Find a lawyer for this in your state

Choose your state to see Bankruptcy law firms in the city where we list the most; your city may be under “other cities”, A to Z. A state marked “Bankruptcy & Debt” has no Bankruptcy listing yet and opens the broader page.

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Related terms

Other entries in the same area of law, each written from the same primary sources.

• Automatic StayThe immediate, court-ordered halt to most collection activity that takes effect the moment a bankruptcy case is filed.
• Bankruptcy DischargeThe court order that ends personal liability for the debts covered by a bankruptcy case - what it does, what it does not do to liens and co-signers, when it is entered, and how it can be denied or later revoked.
• Bankruptcy ExemptionsThe property a person filing bankruptcy keeps - the home equity, vehicle, household goods, tools, retirement accounts and other assets the law places beyond the reach of the trustee and creditors - and the state-by-state choice of which exemption list applies.
• Bankruptcy Means TestThe income calculation that decides whether a person may file a Chapter 7 case or is steered into a Chapter 13 repayment plan - a comparison of household income against the state median, followed if necessary by a line-by-line deduction of allowed expenses.
• Bankruptcy Trustee and the Meeting of CreditorsThe person appointed to administer a bankruptcy case and the short, sworn examination every debtor must attend - what the trustee is looking for, who actually turns up, and what happens after.
• Chapter 7 BankruptcyA liquidation bankruptcy: non-exempt property may be sold to pay creditors, and qualifying debts are discharged.
• Collecting a JudgmentWinning a case and being paid are two different things - the second is a separate process the winner has to start.
• Non-Dischargeable DebtsThe debts a bankruptcy discharge does not erase - child and spousal support, most taxes, most student loans, criminal fines, debts from fraud or drunk-driving injuries - and the difference between those that survive automatically and those a creditor must ask the court to preserve.
• Preferences and Fraudulent Transfers (Clawback)The trustee's power to undo payments and transfers made before a bankruptcy was filed - a repayment to a relative, a property signed over to a family member, a creditor paid ahead of the others - and why "I paid my brother back first" is a problem rather than a virtue.
• Reaffirmation AgreementA voluntary agreement in a Chapter 7 case to remain personally liable on a debt - usually a car loan - that the discharge would otherwise wipe out, in exchange for keeping the property; what it costs, the court's role, and the alternatives of redemption and simply continuing to pay.
• Small Business Bankruptcy (Chapter 11 and Subchapter V)The reorganization chapter for a business that wants to keep operating while it restructures its debts, and the streamlined subchapter Congress added for small businesses - who qualifies, how a plan is confirmed, and what happens to the owner's personal guarantees.

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