Chapter 13 Bankruptcy FAQ

Chapter 13 bankruptcy, often called "wage earner's bankruptcy" or "reorganization bankruptcy," allows individuals with regular income to create a court-approved repayment plan to pay all or part of their debts over 3-5 years. Unlike Chapter 7, which liquidates non-exempt assets to pay creditors, Chapter 13 under 11 U.S.C. §§ 1301-1330 allows you to keep all your property while repaying creditors through monthly payments to a bankruptcy trustee. The repayment plan is based on your disposable income calculated under 11 U.S.C. § 1325(b), and upon successful completion, you receive a discharge of remaining eligible debts under 11 U.S.C. § 1328.

The fundamental difference is that Chapter 7 is a liquidation proceeding taking 4-6 months, while Chapter 13 is a reorganization requiring 3-5 years of monthly payments. In Chapter 7, non-exempt assets are sold by the trustee and proceeds distributed to creditors, but most consumer cases are "no-asset" cases. In Chapter 13, you retain all property, including non-exempt assets, but must dedicate disposable income to the plan. Chapter 13 also allows you to cure arrears on secured debts like mortgages and car loans, preventing foreclosure or repossession—something not possible in Chapter 7.

Chapter 13 provides additional protections not available in Chapter 7, including the co-debtor stay under 11 U.S.C. § 1301 that protects co-signers from collection during your case, and a broader "superdischarge" under § 1328(a) that eliminates certain debts non-dischargeable in Chapter 7, such as property settlement obligations from divorce and debts for willful damage to property (but not persons). California debtors often choose Chapter 13 when facing foreclosure, when they have significant non-exempt equity, when they earn too much to pass the Chapter 7 means test, or when they need to protect co-signers on consumer debts.

To qualify for Chapter 13 bankruptcy, you must meet several requirements under 11 U.S.C. § 109(e). First, you must have regular income sufficient to make monthly plan payments—this can include wages, salary, self-employment income, Social Security benefits, pension payments, rental income, or any other regular source. Second, your debts cannot exceed statutory limits adjusted every 3 years for inflation under 11 U.S.C. § 104. As of April 2022 (current through April 2025), unsecured debts must be less than $465,275 and secured debts less than $1,395,875. These limits are aggregate—total unsecured debt includes credit cards, medical bills, personal loans, and other unsecured obligations, while secured debt includes mortgages, car loans, and other liens.

You must be an individual or individual and spouse filing jointly. Corporations, partnerships, and LLCs cannot file Chapter 13—only individuals and sole proprietors qualify. You must complete credit counseling from an approved agency within 180 days before filing under 11 U.S.C. § 109(h)(1), receiving a certificate you file with your petition. Your tax returns must be current—you must have filed federal and state tax returns for the 4 tax years preceding bankruptcy under 11 U.S.C. § 1308, and provide copies to the trustee and any requesting creditors.

You cannot have had a bankruptcy case dismissed within the preceding 180 days due to willful failure to appear, comply with court orders, or for cause after a request for relief from the automatic stay under 11 U.S.C. § 109(g). Unlike Chapter 7, there is no means test that can disqualify you from Chapter 13—even high-income earners can file if they meet the debt limits. However, if your income exceeds California's median for your household size, you must propose a 5-year plan under 11 U.S.C. § 1322(d) rather than 3 years, and your plan payments will be higher as calculated using the means test.

Chapter 13 repayment plans last either 36 months (3 years) or 60 months (5 years) depending on your income relative to California's median income for your household size under 11 U.S.C. § 1322(d). The U.S. Trustee Program publishes California median income figures that are updated periodically and vary by household size. If your "current monthly income" as calculated on Form 122C-1 is below the state median for your household size, you may propose a 3-year plan (36 months), though the court can approve up to 5 years for cause upon request by you, the trustee, or an unsecured creditor.

If your current monthly income equals or exceeds the state median, you must propose a 5-year plan (60 months). This is mandatory—courts cannot approve a shorter plan for above-median debtors except in very limited circumstances. The plan length significantly affects the total amount paid to creditors and your monthly payment amount. Longer plans mean more total payments, which benefits creditors but extends your commitment period. You cannot extend a Chapter 13 plan beyond 5 years under any circumstances per § 1322(d).

The applicable commitment period under § 1325(b)(4) ties to the plan length—below-median debtors have a 3-year commitment period, while above-median debtors have a 5-year commitment period. During this time, you must pay all projected disposable income to the plan under § 1325(b)(1)(B). However, you can potentially complete your plan early if you pay 100% of all allowed claims before the plan period ends, though this requires court approval and is uncommon in consumer cases. Most debtors complete their plans according to the originally confirmed timeline.

Your Chapter 13 plan payment amount depends on several factors calculated under 11 U.S.C. § 1325. The primary requirement is that you must pay all your projected disposable income to the plan during the applicable commitment period under § 1325(b)(1)(B). Disposable income is calculated using the means test on Form 122C-2 for above-median debtors, which subtracts allowable living expenses (IRS standards, actual mortgage/rent, car payments, mandatory deductions) from your current monthly income. Below-median debtors use actual income and reasonable expenses under § 1325(b)(2).

Beyond disposable income, your plan must pay certain claims in full. Priority debts under 11 U.S.C. § 507 must be paid 100% through the plan per § 1322(a)(2), including recent taxes (typically within 3 years), child support and alimony arrears, and trustee fees (typically 4-10% of total plan payments in California). Secured debts on property you're keeping must receive at least the value of the collateral over the plan term under § 1325(a)(5), either through maintaining current payments plus arrears, or through cramdown for eligible vehicles. Unsecured creditors receive your remaining disposable income after priority and secured claims are paid, often receiving only pennies on the dollar.

Your plan must also pass the "best interests of creditors" test under § 1325(a)(4), meaning unsecured creditors must receive at least what they would get if you filed Chapter 7 and liquidated non-exempt assets. In California, where you can choose generous exemption systems (CCP § 704 or § 703.140), most consumer debtors have no non-exempt assets, making this test easy to satisfy. Finally, the plan must be feasible under § 1325(a)(6)—you must demonstrate ability to make all required payments. California trustees carefully scrutinize income and expenses to ensure feasibility. Monthly plan payments typically range from $100 to $4,000+ depending on income, expenses, and debt composition.

Yes, one of Chapter 13's primary advantages is allowing you to keep all your property, including homes and vehicles, regardless of equity or exemption limitations. Unlike Chapter 7, where non-exempt assets may be liquidated, Chapter 13 under 11 U.S.C. § 1306(b) keeps all property acquired before or during the case in your possession, subject to your plan payments. This is especially valuable for California debtors with significant equity exceeding exemption amounts, or those behind on secured debt payments facing foreclosure or repossession.

For your home, Chapter 13 allows you to cure mortgage arrears through the plan under 11 U.S.C. § 1322(b)(5), spreading past-due payments over the plan's 3-5 year period while maintaining current ongoing payments outside the plan. This stops foreclosure and lets you catch up gradually. For example, if you're $15,000 behind on your mortgage, you can pay $250/month through a 60-month plan to cure the arrears while continuing regular mortgage payments. However, § 1322(b)(2)'s anti-modification provision prohibits modifying your principal residence mortgage's terms—you cannot reduce the interest rate, principal balance, or monthly payment, except for curing arrears and adjusting the final payment date.

For vehicles, Chapter 13 offers powerful tools. If you purchased the vehicle more than 910 days (about 2.5 years) before filing, you can use "cramdown" under 11 U.S.C. § 1325(a)(5) to reduce the secured claim to the vehicle's current replacement value, treating the remainder as unsecured debt. For example, if you owe $20,000 but the car is worth $12,000, you pay only $12,000 as a secured claim at a reasonable interest rate (often 5-7% as determined by the "till rate" from Till v. SCS Credit Corp.), with the remaining $8,000 treated as unsecured debt receiving only your plan's percentage. The 910-day rule doesn't apply to vehicles purchased within that period—they must be paid in full to keep them. California exemptions don't matter in Chapter 13 because you keep everything regardless of equity by dedicating disposable income to creditors.

Chapter 13 provides the same automatic stay as Chapter 7 under 11 U.S.C. § 362(a), immediately stopping lawsuits, garnishments, foreclosures, repossessions, utility disconnections, and creditor collection activities upon filing your petition. This federal injunction prohibits creditors from taking any action to collect prepetition debts, providing breathing room while you reorganize finances. The stay remains in effect throughout your case unless lifted by court order or upon case dismissal or discharge.

Additionally, Chapter 13 offers the unique co-debtor stay under 11 U.S.C. § 1301, which protects co-signers and guarantors on consumer debts from collection actions while your case is active. This extraordinary protection doesn't exist in Chapter 7. The co-debtor stay applies only to consumer debts—those incurred primarily for personal, family, or household purposes—and only if the debt arose before your bankruptcy filing and the co-debtor is not in the credit business. This means if a family member or friend co-signed your car loan, credit card, or personal loan, creditors cannot pursue them for payment during your Chapter 13 case.

However, creditors can request relief from the co-debtor stay under 11 U.S.C. § 1301(c) by filing a motion and showing either that the co-debtor, not you, received the consideration for the claim (meaning they benefited from the loan), or that your plan will not pay the creditor's claim in full. California bankruptcy courts carefully scrutinize such motions. If the stay is lifted, creditors can pursue the co-debtor. Upon your successful plan completion and discharge, the co-debtor's liability is generally reduced by the amount paid through your plan, though they remain liable for any unpaid balance unless they also file bankruptcy or negotiate separately with creditors.

After filing your Chapter 13 petition, schedules, and proposed repayment plan, the court schedules a meeting of creditors (341 meeting) under 11 U.S.C. § 341, typically 20-40 days after filing. At this meeting, the trustee questions you under oath about your financial affairs, income, expenses, assets, and proposed plan. Creditors may attend and ask questions, though this is less common in consumer cases. You must bring identification, Social Security proof, tax returns, and pay stubs as required by Federal Rule of Bankruptcy Procedure 4002(b).

Critically, you must begin making plan payments to the trustee within 30 days of filing your petition under 11 U.S.C. § 1326(a)(1), even before plan confirmation. These payments are held by the trustee and distributed if the plan is confirmed, or returned (minus administrative expenses) if the plan is denied. This requirement demonstrates your ability and commitment to fund the plan. The confirmation hearing occurs 20-45 days after the 341 meeting per Federal Rule of Bankruptcy Procedure 3015, typically 60-90 days after filing.

Creditors can object to confirmation if the plan doesn't meet requirements of 11 U.S.C. § 1325, including failure to propose the plan in good faith under § 1325(a)(3), insufficient payment to unsecured creditors under the best interests test (§ 1325(a)(4)), improper treatment of secured claims (§ 1325(a)(5)), or infeasibility (§ 1325(a)(6)). The trustee may also object if you haven't filed required tax returns or haven't paid domestic support obligations. The court must confirm the plan if it satisfies all § 1325 requirements. Once confirmed under § 1327(a), the plan binds you and all creditors whether or not they filed claims, accepted the plan, or objected to confirmation. Confirmed plans can be modified post-confirmation under § 1329 due to changed circumstances.

If you miss Chapter 13 plan payments, you risk case dismissal or conversion to Chapter 7. The trustee monitors your payments closely and will typically send a delinquency notice after one missed payment. If delinquency continues, the trustee or creditors can file a motion to dismiss your case under 11 U.S.C. § 1307(c) for failure to make timely payments, material default under the plan, or failure to file required tax returns. California bankruptcy courts vary in their tolerance for missed payments—some trustees move to dismiss after 30 days delinquent, while others allow 60-90 days if you're communicating and attempting to cure.

You have several options if you cannot maintain plan payments. First, you may request plan modification under 11 U.S.C. § 1329 to reduce monthly payments due to decreased income or increased necessary expenses (job loss, medical emergency, family changes). Modifications require court approval and must still satisfy § 1325 confirmation requirements. You can extend the plan up to the 5-year maximum if currently in a shorter plan, or change the treatment of secured or unsecured creditors. The plan cannot be extended beyond 60 months under any circumstances per § 1322(d).

Second, you might request conversion to Chapter 7 under 11 U.S.C. § 1307(a), which is your right as a debtor (the court cannot prevent you from converting, though it can dismiss instead if you previously converted from Chapter 7). Conversion is only beneficial if you now qualify for Chapter 7's means test and have no non-exempt assets that would be liquidated. Third, you could request a hardship discharge under § 1328(b) if you cannot complete the plan due to circumstances beyond your control and creditors have received at least what they would have in Chapter 7, though courts rarely grant these. Finally, you can allow dismissal under § 1307(c), which ends bankruptcy protection but leaves you liable for all debts, with creditors able to resume collection activities immediately. California bankruptcy courts encourage debtors to communicate with trustees about financial difficulties rather than defaulting silently.

Chapter 13 offers a broader discharge than Chapter 7 under 11 U.S.C. § 1328(a), commonly called a "superdischarge." Upon completing all plan payments (which the trustee certifies to the court), you receive discharge of all debts provided for in the plan except those specified in § 1328(a)(2)-(4). This includes discharge of debts that would be non-dischargeable in Chapter 7, such as debts arising from property settlements in divorce (but not support obligations), debts for willful and malicious injury to property (but not persons), debts incurred to pay non-dischargeable taxes, government fines other than criminal restitution, and certain homeowners association fees.

However, some debts remain non-dischargeable even in Chapter 13 under § 1328(a)(2)-(3). These include domestic support obligations (child support and alimony), most student loans unless you prove undue hardship through an adversary proceeding per § 523(a)(8), debts for death or personal injury caused by DUI, criminal fines and restitution, certain long-term debts exceeding the plan period (like mortgages), certain tax debts (though many taxes can be paid through the plan and then discharged), and debts arising from fraud in a fiduciary capacity, embezzlement, or larceny.

The superdischarge provides significant advantages over Chapter 7. For example, a $30,000 property settlement debt from divorce is dischargeable in Chapter 13 but not Chapter 7. Similarly, if you damaged someone's property (not person) willfully, that debt can be discharged in Chapter 13 after making plan payments but never in Chapter 7. Creditors can object to discharge under specific circumstances outlined in 11 U.S.C. § 1328(f), including if you received a prior Chapter 7 discharge within 4 years, a prior Chapter 13 discharge within 2 years (with exceptions), or if you haven't completed required financial management education. California bankruptcy courts strictly enforce the financial management course requirement—failure to file the completion certificate before final plan payment will prevent discharge under § 1328(g).

Chapter 13 offers several significant advantages over Chapter 7. First, you keep all property regardless of equity or exemption limitations—crucial for California debtors with valuable assets exceeding the exemptions in CCP § 704 or § 703.140. Second, you can cure mortgage and car loan arrears over 3-5 years under 11 U.S.C. § 1322(b)(5), preventing foreclosure or repossession while catching up on past-due payments. Third, the co-debtor stay under § 1301 protects co-signers and guarantors from collection—valuable for protecting family members who helped you obtain credit. Fourth, you receive a broader superdischarge under § 1328(a) that eliminates certain debts non-dischargeable in Chapter 7, including property settlement obligations and debts for willful damage to property.

Fifth, there's no means test disqualification in Chapter 13—even high earners can file if they meet debt limits. Sixth, in some jurisdictions (though California courts are split), you can strip wholly unsecured junior mortgages through Chapter 13. Seventh, you may reduce car loan balances through cramdown under § 1325(a) for vehicles purchased more than 910 days before filing. Finally, Chapter 13 can pay priority tax debts over time while stopping interest and penalties, then discharge older income tax debts that qualify.

However, Chapter 13 has disadvantages. You must commit to 3-5 years of monthly payments under strict budget constraints, with ongoing trustee oversight of your finances. You cannot incur new debt over $1,000 without trustee or court approval. Post-petition interest continues accruing on some claims like mortgages and vehicle loans. Total costs are higher, including attorney fees ($4,000-$6,000 in California), trustee fees (typically 4-10% of total plan payments), and potentially tens of thousands in total payments over the plan term. Chapter 13 remains on your credit report for 7 years under 15 U.S.C. § 1681c versus 10 years for Chapter 7, but may impact credit scores similarly.

Chapter 13 is often preferable when you're facing foreclosure and want to keep your home, have significant non-exempt equity in property, earn too much to pass the Chapter 7 means test, have co-signers you want to protect, owe non-dischargeable debts like recent taxes or property settlement obligations that can be paid through the plan, or need to reduce car loan balances through cramdown. Chapter 7 is better when you have little income, no non-exempt assets, no secured debt arrears, want quick relief (4-6 months), and qualify under the means test. California bankruptcy attorneys carefully analyze your specific situation to recommend the optimal chapter.