Who Files Chapter 13 Bankruptcy?

Happy family after filing a chapter 13 bankruptcy Chapter 13 is the repayment chapter of the Bankruptcy Code. Instead of giving up property so it can be sold for creditors, you keep what you own and pay what you can afford through a court-approved plan that runs for three to five years. When the plan is complete, most of the debt that is left is discharged. People choose Chapter 13 for very different reasons, and for some it is the only chapter available.

When your income is above the Chapter 7 line

Since the 2005 bankruptcy reform, everyone who files Chapter 7 has to pass the means test. The test averages your household income over the six full months before you file and compares it with the median income for a household of your size in your state. Below the median, you generally qualify for Chapter 7. Above it, a second calculation subtracts allowed living expenses, and if enough is left over to pay creditors something, Chapter 13 becomes the route to a discharge. Utah and California medians are far apart, so the same paycheck can pass in one state and fail in the other.

When you are behind on your house or car

Chapter 7 has no tool for catching up missed payments. Chapter 13 does. Your plan can spread mortgage arrears over three to five years while you resume your regular monthly payment, which is why many homeowners file it to stop a foreclosure sale. In some cases a plan can also reduce what you owe on an older car loan or remove a second mortgage that is no longer backed by any equity in the home.

When you have property you want to keep

In Chapter 7 the trustee can sell property that no exemption protects. In Chapter 13 you keep that property, and in exchange your plan pays unsecured creditors at least what they would have received had it been sold. For someone with home equity above the exemption, that trade is often the better deal.

When some debts will survive bankruptcy anyway

Recent income taxes, past-due child support and other priority debts are not wiped out by a Chapter 7 discharge. A Chapter 13 plan pays them in full over the life of the plan while the automatic stay keeps the IRS, the state and other collectors from garnishing wages or levying bank accounts. While the case is open, the stay also protects friends or relatives who co-signed your consumer debts.

Who is eligible

Individuals only. You can file if you are a wage earner, retired, or self-employed, including as a sole proprietor. Corporations and LLCs cannot file Chapter 13.
Regular income. Wages, self-employment earnings, Social Security, pensions and other steady income all count.
Debt limits. Your unsecured debts must be below $526,700 and your secured debts below $1,580,125. These limits apply to cases filed from April 1, 2025, through March 31, 2028, and are adjusted every three years under 11 U.S.C. § 104.
Credit counseling. You must complete a course from an approved agency within 180 days before you file.
Timing of a prior discharge. You cannot receive a Chapter 13 discharge if you received a discharge in a Chapter 7, 11 or 12 case filed in the previous four years, or in a Chapter 13 case filed in the previous two years. You can still file to use the plan, for example to save a home, but no discharge is entered at the end.

How long the plan lasts

The length of the plan follows your income, not your choice. If your income is below your state’s median, the plan normally lasts three years, and the court can extend it to five for good reason. If your income is above the median, the plan lasts five years and many of your expenses are measured against IRS standards. No plan can run longer than five years.

Talk with us

Choosing between Chapter 7 and Chapter 13 is a judgment call that turns on your income, your property and your goals. Lincoln Law’s attorneys handle consumer bankruptcy cases in Utah and California, and a free consultation is the quickest way to learn which chapter fits you.

Author: Carl Gustafson