Chapter 13 Bankruptcy

Chapter 13 is often called the "wage earner's plan" because it's designed for people who have regular income but fell behind on payments. Instead of wiping out debt immediately, you propose a structured repayment plan to the court — typically 3 years if your income is below your state median, or 5 years if it's above. During those years, you make monthly payments to a bankruptcy trustee, who distributes the money to your creditors.

One of the biggest advantages of Chapter 13 is that it lets you catch up on mortgage arrears (missed payments) without losing your home. If you're behind 6 months on your mortgage, you can spread those missed payments over 5 years in your plan, giving you time to get current. You can also use Chapter 13 to keep a car you couldn't keep in Chapter 7, pay off priority debts like taxes and child support, and restructure certain secured loans.

Not all debt gets repaid in Chapter 13 — the amount you pay back depends on your disposable income and the value of non-exempt assets. Some people pay back 100% of what they owe; others pay as little as 1–10 cents on the dollar. At the end of the plan, remaining eligible unsecured debts are discharged.

Chapter 13 is the right choice when you have assets you want to protect that you'd lose in Chapter 7, when you're behind on a mortgage and want to save your home, or when your income is too high to pass the Chapter 7 means test. It's also useful for catching up on non-dischargeable debts like back taxes or domestic support obligations within the plan's framework.

The downside is duration — you'll be on a court-supervised budget for 3 to 5 years. Payments must be made consistently; if you miss too many, your case can be dismissed. But for homeowners, higher-income filers, or anyone who wants to keep property that would be sold in Chapter 7, Chapter 13 offers structured protection that Chapter 7 cannot.