Summary. Chapter 13 is the reorganization chapter for individuals with regular income, and it does two things Chapter 7 cannot: it stops a foreclosure and lets a homeowner cure arrears over years, and it lets a debtor keep property that would otherwise be liquidated. The price is a three- to five-year plan funded from disposable income, calculated under a formula that leaves less room for judgment than most debtors expect. The mechanics that decide whether a case is worth filing are the debt limits, the means-test-derived commitment period, the treatment of secured claims including the anti-modification rule for principal residences, and the priority claims that must be paid in full. This article works through eligibility, plan construction, confirmation, the life of a case, and the discharge that arrives at the end of it.

People come to Chapter 13 for one of two reasons, and the reason determines almost everything about how the case should be built.

The first reason is a house. A homeowner is four payments behind, the lender has scheduled a foreclosure sale, and no amount of negotiation has produced a modification. Chapter 7 does not help — it discharges the personal obligation but leaves the lien, and the foreclosure proceeds after the stay lifts. Chapter 13 stops the sale and gives the debtor up to five years to cure the arrears while making the ongoing payments.

The second reason is property the debtor cannot afford to lose. A Chapter 7 trustee liquidates non-exempt assets. A debtor with equity above the exemption, an expensive vehicle, or a small business with real value keeps it in Chapter 13 by paying unsecured creditors at least what they would have received in a liquidation.

There is a third reason, less common and more technical: a debtor who is ineligible for Chapter 7 under the means test, or who received a Chapter 7 discharge too recently, may have Chapter 13 as the only door.

What follows is the architecture — who qualifies, how a plan is built, what confirmation requires, what goes wrong during the case, and what the discharge actually accomplishes.

Eligibility

Regular income

Section 109(e) of the Bankruptcy Code limits Chapter 13 to an "individual with regular income," defined at 11 U.S.C. § 101(30) as an individual whose income is sufficiently stable and regular to enable them to make payments under a plan. Wages are the paradigm, but the definition reaches self-employment income, Social Security, pensions, rental income, and in some circuits regular contributions from family members. It excludes debtors whose income is genuinely unpredictable.

Note the boundary: only individuals may file Chapter 13. A corporation, LLC, or partnership cannot, regardless of size. A sole proprietor can, and their business assets and liabilities come into the case with them, which is why Chapter 13 functions as a small business reorganization tool for unincorporated operators.

Stockbrokers and commodity brokers are excluded.

Debt limits

Section 109(e) imposes ceilings on noncontingent, liquidated debts as of the petition date, separately for secured and unsecured debt. These figures adjust every three years under 11 U.S.C. § 104 and must be checked against the current adjusted amounts rather than remembered — the limits have moved substantially over the past several years, including a temporary consolidated limit that has since expired.

The mechanics of the calculation matter more than the number:

  • Noncontingent excludes debts dependent on a future event that has not occurred — a guaranty not yet called, for instance.
  • Liquidated excludes debts whose amount requires substantial adjudication. A disputed tort claim is generally unliquidated; a judgment is liquidated.
  • Secured versus unsecured is measured by the debt's character, and courts split on whether the classification follows the face amount of the debt or the value of the collateral. An undersecured mortgage may push a debtor over the unsecured limit in one circuit and not another.
  • Disputed debts still count if noncontingent and liquidated.

A debtor over the limits has options: Chapter 11, or Subchapter V if the debts are primarily business debts and the debtor is engaged in commercial activity.

Credit counseling and prior discharges

Section 109(h) requires a briefing from an approved nonprofit budget and credit counseling agency within 180 days before filing. The requirement is enforced strictly, and cases are dismissed for its absence.

Prior discharges limit the availability of a discharge, not of the filing. Under § 1328(f), a debtor may not receive a Chapter 13 discharge if they received a Chapter 7, 11, or 12 discharge in a case filed within four years before the current filing, or a Chapter 13 discharge in a case filed within two years. A debtor in that position may still file — a so-called Chapter 20, following a Chapter 7 with a Chapter 13 — to cure arrears or address liens, but emerges without a discharge.

Building the plan

The plan is the case. Everything else is procedure around it.

The commitment period

Section 1325(b)(4) sets the applicable commitment period: three years for a debtor whose current monthly income, annualized, is below the state median for a household of the same size, and five years for a debtor above it. A below-median debtor may propose a longer plan; a plan may not exceed five years under § 1322(d).

Current monthly income is defined at § 101(10A) as the average monthly income from all sources during the six full months before filing. It is a backward-looking, mechanical figure, and it produces anomalies constantly: a debtor who lost a job five months ago may show income they no longer have, and a debtor who received a bonus in the lookback window may be pushed above median artificially. Timing a filing to move the six-month window is legitimate planning and is frequently the single most valuable thing counsel does.

The disposable income test

Section 1325(b)(1) provides that if the trustee or an unsecured creditor objects to confirmation, the plan must either pay unsecured claims in full or commit all of the debtor's projected disposable income during the commitment period.

For above-median debtors, disposable income is calculated using the means test deductions in § 707(b)(2): IRS National and Local Standards for food, clothing, housing, and transportation, plus actual amounts for certain categories. The result is formulaic and frequently bears little resemblance to the debtor's actual budget.

For below-median debtors, the calculation uses amounts reasonably necessary for the maintenance and support of the debtor and dependents — a standard that gives the court real discretion.

The word "projected" carries weight. Hamilton v. Lanning, 560 U.S. 505 (2010), held that a court may account for known or virtually certain changes in the debtor's income or expenses, rather than mechanically extrapolating historical figures. This is the escape valve for the job-loss anomaly.

Ransom v. FIA Card Services, N.A., 562 U.S. 61 (2011), held the opposite direction on vehicle ownership: a debtor who owns a car free and clear may not claim the ownership-cost deduction, because they do not incur that expense.

The best interests test

Section 1325(a)(4) requires that each unsecured creditor receive at least as much under the plan as it would in a Chapter 7 liquidation. This is the floor, and it is what forces a debtor with non-exempt equity to pay something.

Computing it requires a hypothetical Chapter 7: value the assets, subtract liens and exemptions, subtract hypothetical trustee compensation and administrative expenses, and distribute the remainder by priority. The resulting figure is the minimum the plan must deliver to general unsecured creditors in present value terms.

Good faith

Section 1325(a)(3) requires the plan to be proposed in good faith, and § 1325(a)(7) requires the petition itself to be filed in good faith. Courts apply a totality-of-circumstances test. Factors that draw scrutiny include a very low percentage to unsecured creditors combined with substantial discretionary spending, serial filings, plans that pay a non-dischargeable debt while paying nothing to general creditors, and eve-of-filing conduct that looks like manipulation.

Secured claims: where the real work happens

Chapter 13's treatment of secured claims is the reason the chapter exists, and it is the most technical part of the practice.

The anti-modification rule for principal residences

Section 1322(b)(2) permits a plan to modify the rights of secured creditors — except a claim secured only by a security interest in real property that is the debtor's principal residence.

Nobelman v. American Savings Bank, 508 U.S. 324 (1993), held this protection absolute for a mortgage that is even partially secured. A first mortgage of three hundred thousand on a home worth two hundred thousand cannot be bifurcated into a secured claim of two hundred thousand and an unsecured claim of one hundred thousand. The whole claim rides through.

Three important qualifications:

Wholly unsecured junior liens can be stripped off. Where a second mortgage is entirely underwater — the first mortgage exceeds the value of the home — most circuits hold that the junior lienholder does not hold a "secured claim" at all within § 506(a), and § 1322(b)(2)'s protection therefore does not apply. The claim is treated as unsecured and the lien is voided on completion of the plan. This is the single most valuable tool in Chapter 13 for underwater homeowners. Note that Bank of America, N.A. v. Caulkett, 575 U.S. 790 (2015), foreclosed the same maneuver in Chapter 7, which is a reason to file 13.

Cure and reinstatement is always available. Section 1322(b)(3) and § 1322(b)(5) permit a plan to cure a default and maintain payments on a long-term debt whose final payment falls due after the plan ends. This is the foreclosure fix: arrears are paid through the plan over its term, ongoing payments are made as they come due, and the mortgage is reinstated. Section 1322(c)(1) preserves this right until the residence is sold at a foreclosure sale.

The exception has its own exception. Where the lender took additional collateral beyond the residence — an assignment of rents, or personal property — the anti-modification rule does not apply, because the claim is not secured only by the residence.

Cramdown on other secured claims

For secured claims outside the residence protection, § 1325(a)(5) provides three routes: the creditor accepts the plan, the debtor surrenders the collateral, or the plan satisfies the cramdown requirements.

Cramdown allows the plan to pay the creditor the value of the collateral rather than the amount of the debt, with the deficiency treated as unsecured. Two elements matter:

Valuation. Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997), and § 506(a)(2) require replacement value — what it would cost the debtor to acquire similar property — rather than foreclosure value, for personal property acquired for personal use.

Interest rate. Till v. SCS Credit Corp., 541 U.S. 465 (2004), adopted a formula approach: the national prime rate, adjusted upward for the risk of nonpayment, typically by one to three percent. The plurality rejected both the contract rate and the creditor's cost of funds. Local practice in most districts settles on a customary "Till rate" that counsel should know.

The hanging paragraph

The unnumbered paragraph following § 1325(a)(9) — universally called the hanging paragraph — removes § 506 from the analysis for two categories:

  • A purchase-money security interest in a motor vehicle acquired for personal use within 910 days before filing.
  • A purchase-money security interest in any other thing of value acquired within one year before filing.

For these claims, no bifurcation is available. The full debt must be paid as secured, with interest, though Till still governs the rate. The practical consequence is that a debtor with a recent car loan and negative equity cannot cram it down, and the timing of the purchase relative to the filing date determines the outcome.

The "acquired for personal use" limitation is litigated. A vehicle used substantially for business may fall outside the paragraph, restoring cramdown.

Adequate protection

Section 1326(a)(1)(C) requires the debtor to make adequate protection payments to secured creditors holding purchase-money interests in personal property, beginning within thirty days of filing and continuing until confirmation. Missing these is a common early failure.

Priority claims and unsecured creditors

Section 1322(a)(2) requires the plan to pay in full all claims entitled to priority under § 507, unless the holder agrees otherwise. In practice this means:

  • Domestic support obligations under § 507(a)(1). These must be paid in full, and § 1325(a)(8) additionally requires the debtor to be current on post-petition support as a condition of confirmation. Section 1328(a) excepts them from discharge.
  • Administrative expenses under § 507(a)(2), including the trustee's percentage fee and, in many districts, debtor's counsel fees paid through the plan.
  • Priority taxes under § 507(a)(8) — recent income taxes, trust fund taxes, and certain others — payable in full without interest through the plan.

General unsecured creditors receive whatever the disposable income and best interests tests require, which ranges from zero to one hundred percent. A "zero percent plan" is confirmable where the debtor has no projected disposable income and no non-exempt equity, though it draws good-faith scrutiny.

Separate classification

Section 1322(b)(1) permits classification of unsecured claims but forbids unfair discrimination between classes. The recurring use is a class for co-signed consumer debts, paid in full to protect the co-debtor. Courts assess unfair discrimination by asking whether the discrimination has a reasonable basis, whether the debtor can carry out the plan without it, whether it is proposed in good faith, and whether the degree of discrimination is directly related to its basis.

The automatic stay, and the co-debtor stay

Section 362 imposes the automatic stay on filing, halting collection, foreclosure, garnishment, and litigation. Two Chapter 13 features go further.

The co-debtor stay. Section 1301 stays collection against an individual who is liable with the debtor on a consumer debt, unless the co-debtor received the consideration, the plan proposes not to pay the claim in full, or the creditor's interest would be irreparably harmed. This has no analogue in Chapter 7 and is frequently the reason a debtor chooses 13 — it protects a parent who co-signed a car loan.

Stay limitations for repeat filers. Section 362(c)(3) terminates the stay after thirty days where the debtor had a case dismissed within the preceding year, unless the court extends it on a showing of good faith. Section 362(c)(4) provides that no stay arises at all where two or more cases were dismissed in the preceding year. Both require prompt motion practice, and the deadlines are unforgiving.

Confirmation and the life of the case

The timeline

  • Petition, schedules, and plan. The plan must be filed with the petition or within fourteen days under Fed. R. Bankr. P. 3015(b).
  • Payments begin within thirty days of filing under § 1326(a)(1), whether or not the plan is confirmed. Debtors who wait for confirmation to start paying create an immediate cure problem.
  • Section 341 meeting of creditors within twenty-one to fifty days, conducted by the standing trustee.
  • Objections to confirmation from the trustee and creditors.
  • Confirmation hearing under § 1324, held not earlier than twenty and not later than forty-five days after the § 341 meeting.
  • Proof of claim deadline — seventy days after filing for non-governmental creditors under Fed. R. Bankr. P. 3002(c), with 180 days for governmental units.

Effect of confirmation

Section 1327(a) binds the debtor and every creditor to the plan's terms, whether or not the creditor objected or accepted. This is the res judicata effect that makes confirmation valuable, and United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), held it binding even where the plan provision was legally erroneous, absent a timely appeal — a creditor that ignores a plan does so at its own risk.

Section 1327(b) vests property of the estate in the debtor on confirmation unless the plan provides otherwise.

Modification

Section 1329 permits modification after confirmation, on request of the debtor, trustee, or an unsecured creditor, to increase or reduce payments, extend or shorten the time, or alter distributions. This is what makes Chapter 13 survivable: a debtor whose income drops can modify rather than fail.

When cases fail

The completion rate for Chapter 13 plans is sobering — a substantial minority of cases reach discharge, with the balance dismissed or converted. The common failure points are a plan payment set at the edge of feasibility, a vehicle breakdown or medical event with no budget slack, and post-petition tax liabilities.

The options when a case fails:

  • Modify under § 1329.
  • Convert to Chapter 7 under § 1307(a), which the debtor may do at any time and which cannot be waived. Note Harris v. Viegelahn, 575 U.S. 510 (2015): on conversion, undistributed plan payments held by the trustee go back to the debtor, not to creditors.
  • Hardship discharge under § 1328(b), available where failure is due to circumstances for which the debtor should not justly be held accountable, unsecured creditors have received at least the liquidation value, and modification is not practicable. The resulting discharge is narrower — the § 523(a) exceptions applicable in Chapter 7 all apply.
  • Dismissal under § 1307(c), which restores creditors to their pre-petition positions.

The discharge

Section 1328(a) grants a discharge after completion of all payments, conditioned on the debtor certifying that all domestic support obligations are current, having completed a personal financial management course under § 111, and — where § 522(q) applies — certifying the absence of certain proceedings.

The Chapter 13 discharge is broader than Chapter 7's. Debts excepted from a Chapter 7 discharge under § 523(a) that are discharged in Chapter 13 include:

  • Willful and malicious injury to property, under § 523(a)(6), where the injury was to property rather than to a person.
  • Certain tax penalties and older tax obligations.
  • Debts arising from property settlements in divorce under § 523(a)(15) — though not domestic support obligations under § 523(a)(5).
  • Debts incurred to pay non-dischargeable taxes.
  • Fines and penalties other than criminal restitution.

The narrowing over successive amendments has reduced the historical gap considerably, but it remains real, and the property-settlement point in particular drives filing decisions after a divorce.

Not discharged, among others: domestic support obligations, most student loans absent an undue hardship determination under § 523(a)(8), fraud claims under § 523(a)(2) where a creditor obtains a determination, criminal restitution, drunk-driving personal injury claims, and long-term obligations on which payments extend beyond the plan under § 1322(b)(5).

On student loans, note that the Department of Education and the Department of Justice adopted guidance in 2022 substantially easing the process for establishing undue hardship through an attestation procedure, and discharge rates have risen accordingly. The statutory standard is unchanged; the litigation posture is not.

Practical judgment: when Chapter 13 is the right answer

File 13 when: there is a home to save with curable arrears and sustainable ongoing payments; there is a wholly unsecured junior mortgage to strip; there is non-exempt equity the debtor will not surrender; the debtor is ineligible for a Chapter 7 discharge on timing; there is a co-signed consumer debt worth protecting; or there are priority taxes that can be paid over time under the protection of the stay.

File 7 instead when: the debtor's income genuinely cannot support a plan; there is little non-exempt property; the mortgage is unaffordable even without arrears; or the debtor's goal is a fresh start rather than the preservation of a specific asset.

Neither, when the debtor's problem is a single dischargeable debt that can be settled, or when the debtor is judgment-proof and can simply be advised to stop responding to collectors.

The most common counseling error is filing 13 to save a house the debtor cannot afford. Running the arrears cure plus the ongoing payment against actual disposable income, before filing, prevents most of the failures.

Primary authority

A worked plan: the foreclosure case

Numbers make the machinery legible.

A married couple owns a home worth three hundred twenty thousand dollars. The first mortgage balance is two hundred ninety thousand, with a monthly payment of two thousand one hundred including escrow. They are nine payments behind — nineteen thousand in arrears — after one spouse was out of work for six months. There is a second mortgage of forty-five thousand. They owe eight thousand on a car purchased four years ago, worth six thousand. Credit card debt is thirty-one thousand. Combined income is now back to eight thousand five hundred a month gross, above the state median for a household of two. They have four thousand in a checking account and eleven thousand in a 401(k). A foreclosure sale is set for six weeks out.

The stay. Filing stops the sale. That alone is the reason the case exists.

Commitment period. Above median, so sixty months.

The second mortgage. The home is worth three hundred twenty thousand; the first is two hundred ninety thousand. The second is not wholly unsecured — there is thirty thousand of equity behind the first — so it cannot be stripped. Had the home appraised at two hundred eighty-five thousand, the second would be void and forty-five thousand would drop into the unsecured pool. The appraisal is the single highest-value piece of work in this case, and it is worth paying for a good one.

The arrears. Nineteen thousand cured over sixty months is roughly three hundred seventeen a month, plus the ongoing two thousand one hundred paid directly or through the plan depending on local practice.

The car. Purchased four years ago, so outside the 910-day window. Cramdown available: pay six thousand as secured at the district's Till rate rather than eight thousand at the contract rate, with two thousand dropping into the unsecured pool. At roughly six percent over sixty months, about one hundred sixteen a month.

Best interests floor. Home equity of thirty thousand minus the second mortgage of forty-five thousand is zero equity. The 401(k) is excluded from the estate entirely under § 541(c)(2) and Patterson v. Shumate, 504 U.S. 753 (1992). The four thousand in checking is likely exempt in whole or part. Non-exempt equity is close to nothing, so the liquidation floor is near zero — the disposable income test, not the best interests test, will drive the unsecured distribution.

Disposable income. Current monthly income is calculated on the six months before filing, which still includes part of the unemployment period. That figure may show meaningfully less than eight thousand five hundred. Under Lanning, the trustee will argue the known return to full income should be projected forward. Counsel should expect that argument and budget for it rather than being surprised at confirmation.

The plan payment is roughly three hundred seventeen for arrears, one hundred sixteen for the vehicle, plus trustee compensation of around ten percent, plus attorney fees, plus whatever disposable income analysis yields for unsecured creditors. Call it six hundred to eight hundred a month on top of the ongoing mortgage.

The question that decides the case is not legal. It is whether this household can pay two thousand one hundred plus seven hundred, every month, for five years, with no slack. If the honest answer is no, the right advice is Chapter 7 and a surrender — and giving that advice early is worth more to the client than a confirmed plan that fails in month nineteen.

What creditors should do

Chapter 13 is usually described from the debtor's side, but most of the parties in a case are creditors, and their obligations and opportunities are specific.

File a proof of claim, and file it on time. Under Fed. R. Bankr. P. 3002(a), a secured creditor must file a claim to receive a distribution — a change from prior practice that still catches lenders. The deadline is seventy days after the order for relief for non-governmental creditors. A late claim is disallowed on objection.

Attach the documentation Rule 3001 requires. For a claim based on a writing, attach it. For a claim secured by a security interest in the debtor's principal residence, attach the escrow statement and the Official Form 410A payment history. Failure to comply permits the court to preclude the evidence or award fees under Rule 3001(c)(2)(D).

Review the plan against your collateral. Confirmation binds you whether or not you object. Check the valuation, the interest rate, the treatment of arrears, and whether the plan purports to strip or avoid your lien. Espinosa means an unobjectionable-looking provision buried in a plan can bind a creditor that did not read it.

Object to confirmation in writing and on time. Local rules set the deadline, and it is typically short.

Watch for post-petition default. Fed. R. Bankr. P. 3002.1 requires notice of payment changes on a residential mortgage at least twenty-one days before the change, notice of post-petition fees within 180 days of incurring them, and a response to the trustee's notice of final cure. Non-compliance carries preclusion and fee-shifting consequences under Rule 3002.1(i), and this rule generates a great deal of litigation against servicers.

Consider a motion for relief from stay where the debtor is not making adequate protection payments or has no equity and the property is not necessary to an effective reorganization, under § 362(d)(1) and (d)(2). In practice, most such motions in Chapter 13 resolve into an agreed order with a strict compliance provision.

Assess dischargeability early. A creditor holding a claim under § 523(a)(2), (4), or (6) must file an adversary proceeding within the deadline in Fed. R. Bankr. P. 4007(c) — sixty days after the § 341 meeting — or the claim is discharged. In Chapter 13 the § 523(a)(6) property-damage variant is discharged regardless, so the analysis differs from Chapter 7.

Do not violate the stay. Section 362(k) provides actual damages, costs, fees, and in appropriate circumstances punitive damages for a willful violation. Automated collection systems that continue dunning after notice are the most common source, and the damages are real.

Related articles

This article is provided for general informational purposes and does not constitute legal advice. The Chapter 13 debt limits adjust every three years and have recently changed; confirm the current figures before assessing eligibility. Local practice — plan forms, customary interest rates, trustee requirements, and lien-stripping procedure — varies substantially by district. Consult a qualified consumer bankruptcy attorney before filing.