Is Chapter 13 Bankruptcy Right for You? Pros and Cons Explained

Opting to file for bankruptcy is one of the hardest decisions you’ll ever make. The already difficult choice is further complicated by determining which type of bankruptcy will work best for you. Most people file for either Chapter 7 or Chapter 13 bankruptcy. While both types of bankruptcy offer debt relief, there are pros and cons to both.

For people who have substantial debt and assets, Chapter 13 may be the best option. Unlike a Chapter 7 liquidation bankruptcy, a Chapter 13 bankruptcy case allows you to keep your assets and enter a long-term repayment plan.

This article examines and explains how a Chapter 13 bankruptcy works. It also discusses the advantages and disadvantages of choosing this type of bankruptcy. If you’re considering bankruptcy or have already filed your bankruptcy petition, contact an experienced bankruptcy attorney to discuss your case. They’ll help guide you through the bankruptcy proceedings and move you toward the fresh start you so desperately need.

How Does Chapter 13 Bankruptcy Work?

Chapter 13 cases work quite differently than Chapter 7 bankruptcy cases. The primary difference between the two is that Chapter 7 is a liquidation bankruptcy while Chapter 13 is more of a reorganization bankruptcy.

In a Chapter 7, the trustee sells the debtor’s assets and uses the proceeds to pay off creditors. The bankruptcy court discharges (eliminates) whatever debt you can’t pay through the bankruptcy.

For Chapter 13 bankruptcy cases, the trustee negotiates a payment plan with your creditors so that you can keep most, if not all, of your real and personal property. The payment plan lasts anywhere from three to five years.

By the end of your repayment plan, you’ll have paid your creditors either the entire amount you owed or an acceptable percentage of the total debt. The Chapter 13 trustee confirms the amounts you will pay before the bankruptcy judge approves your proposed plan.

Why File a Chapter 13 Bankruptcy?

Why would a person elect to file a Chapter 13 bankruptcy when they can file a Chapter 7? After all, wouldn’t having a judge wipe out all of your debt be better than having to pay it all back? Plus, a repayment plan will last for up to five years.

Three to five years may seem like a long period of time, but it’s a small price to pay if it means you get to keep your prized assets. Filing a Chapter 13 bankruptcy keeps the trustee from selling their assets to pay creditors.

Chapter 13 filers want to keep assets, such as their home, and are aware that their state’s homestead exemption will likely not cover the equity in their house. They also might want to keep their car and any other valuables they have.

There are numerous benefits in choosing a Chapter 13 bankruptcy instead of a Chapter 7, but there are disadvantages as well. Read on to learn the pros and the cons involved.

Filing a Chapter 13 Bankruptcy: The Basics

The Chapter 13 bankruptcy process is a serious undertaking and should serve as a last resort for your financial situation. Knowing what’s involved and how it works can help clarify your options. Let’s take a look at some of the most common questions about Chapter 13 bankruptcy.

How Long Does It Take To File for Chapter 13?

There’s no set time for how long it will take to complete your Chapter 13 bankruptcy. Every case is unique. The more assets and debts you have, the longer it will take to work out an acceptable payment plan.

On average, a Chapter 13 bankruptcy can take about five-and-a-half years to complete. This is assuming that your trustee approves a five-year Chapter 13 plan. It also provides for two months to file your actual Chapter 13 petition, start your repayment plan, and ultimately receive your bankruptcy discharge.

How Much Does It Cost to File a Chapter 13 Bankruptcy?

The filing fee is the same for everyone who files a Chapter 13 petition. The uniform filing fee is $313 (as of 2026). The amount you’ll pay in attorney fees will vary. A Chapter 13 bankruptcy lawyer will charge you an average of $3,000 to $4,500, depending on how complicated your case is.

In addition to the above fees, you will also have to pay for some (or all) of the following requirements:

• Credit counseling course: Anywhere from $10 to $50
• Debtor education classes: Runs from $25 to $50
• Trustee: Your trustee receives 10% of your plan payments

If you cannot afford to pay these fees, the court may be willing to let you pay in installments.

You can ask to pay the filing fee of $313 ($235 case filing fee and $78 administrative fee) over four payments by submitting an “Application to Pay Filing Fee in Installments” form. Submit the completed form with your bankruptcy petition.

How Will a Chapter 13 Bankruptcy Impact My Credit Score?

A Chapter 13 bankruptcy discharge remains on your credit report for seven years. There is nothing you can do to remove this record from your report. The good news is that you can start rebuilding your credit as soon as you complete your Chapter 13 plan.

Can I Keep My Home?

One of the main reasons people file for Chapter 13 instead of Chapter 7 is because they want to keep their home. Chapter 13 allows a debtor to reorganize their debt so that they can make manageable payments over time and enjoy relief from debt collection efforts.

As long as you can catch up on any arrears through your plan, the trustee and judge should approve your petition. If your home is already in foreclosure, this may not be possible. For the trustee to approve a repayment plan for a property in foreclosure, you must demonstrate that you will have sufficient income to pay not only your monthly Chapter 13 plan payments but your ongoing mortgage payments as well.

Can I Keep My Car?

There’s a chance you can keep your motor vehicle if you file Chapter 13. However, you must be able to pay both the Chapter 13 plan payments along with current payments on any outstanding auto loans.

The other option is to ask for a loan cramdown. This is when the bankruptcy court reduces the principal on your debt to the fair market value at the time of your bankruptcy petition. This debt then becomes unsecured, and the trustee will negotiate the plan payments on the balance of your car loan the same way they do for other unsecured creditors.

Which Debts Do You Repay in a Chapter 13 Case?

To achieve a Chapter 13 discharge, your trustee must approve your proposed repayment plan before submitting the plan to a judge. If the judge and the creditors approve the plan, you will initiate your plan payments within 30 days of your bankruptcy petition.

The trustee will only approve your proposed plan if you commit to the following:

• Priority debts (in full): These are debts the trustee deems more important than others, such as unsecured debts. These debts receive priority because the courts deem them necessary for human welfare. Common priority debts include child support, alimony, tax debts, and administrative expenses. The trustee must arrange for full payment of these debts from the bankruptcy estate’s assets and funds.
• Secured debts (current plus arrears): Secured debts are those debts that are attached to collateral. For example, a mortgage or car loan would qualify as secured debts because they are held by collateral. Secured debts are paid after priority debts and before unsecured debts. The trustee may approve a plan that calls for partial payment of these debts.
• Unsecured (based on your disposable income): Unsecured debts are bills not attached to any collateral. The most common examples of unsecured debts include credit cards, personal loans, and medical bills. These are the last creditors to be paid in any type of bankruptcy.

The goal of Chapter 13 is to pay off all of your debts.

What Debts Are Not Paid Through a Chapter 13 Bankruptcy?

While a Chapter 13 plan may arrange for repayment of most of your debts over time, there are certain debts that the court will not discharge through a Chapter 13. When your three- to five-year repayment is over, the court will discharge whatever is left unpaid, but certain debts aren’t eligible.

Some of the debts that are not dischargeable through Chapter 13 include:

• Student loans
• Recent tax debts
• Child support
• Alimony

While a Chapter 13 bankruptcy will allow you to catch up on arrears and avoid further collection efforts, it will not eliminate the above bills. Once your bankruptcy is complete, you must continue to make ongoing payments to these creditors.

How Soon Can I File for Bankruptcy?

Years ago, it wasn’t difficult to refile bankruptcy every few years and eliminate your debt over and over again. In recent years, bankruptcy laws have changed regarding the waiting period between bankruptcy filings. Under the current Bankruptcy Code, you must wait at least two years before you can file another Chapter 13. As for filing Chapter 7 bankruptcy, the waiting period is six years.

If you attempt to file a bankruptcy petition before the waiting period is over, the court will dismiss your petition. Any filing fees paid at the time of submission won’t be refunded.

Eligibility Requirements for a Chapter 13

You are required to meet eligibility requirements for Chapter 13. There’s no way to know for certain if you meet these criteria until you file your petition and your trustee approves your repayment plan.

The basic requirements to file for Chapter 13 include the following:

• You must have a regular income sufficient to make your Chapter 13 plan payments, regardless of the source
• Total unsecured debt of less than $526,700
• Total secured debt of less than $1,580,125
• Only individual debtors and married couples can file for Chapter 13
• No dismissed bankruptcies within 180 days of your petition
• Complete a credit counseling course from an approved agency within 180 days before you file for bankruptcy, including a copy of your certificate of completion with your Chapter 13 bankruptcy petition
• Complete state and federal tax returns for the four years preceding your bankruptcy filing, copies of which must be provided to the trustee

It’s a good idea to meet with a local bankruptcy lawyer before you file your petition.

Is Chapter 13 Right for You?

Determining whether Chapter 13 is the right bankruptcy option depends on your financial situation, your goals, and the type of debts you have. Use this guide to assess whether Chapter 13 is a good fit for your needs. 

You’ll know if Chapter 13 is the best option for you if the following statements are true:

• You want to keep your home and are facing foreclosure. Once you file your Chapter 13 petition, the mortgage company must halt any foreclosure actions because of the automatic stay.
• You have a regular, predictable income. If you cannot prove that you earn enough to make your plan payments and your ongoing scheduled payments, the trustee will not approve your bankruptcy.
• Your secured and unsecured debts fall below the maximum limits under the U.S. Bankruptcy Code. If you owe more than $526,700 in unsecured debts or $1,580,125 in secured debts, you will not qualify for Chapter 13.
• You’re behind on your mortgage or car payments and need to catch up. Since your bankruptcy petition will trigger the automatic stay, your creditors must stop all collection activity until your plan is completed.
• You have equity in your home or other property. If you don’t have equity in your house, you may want to consider a Chapter 7 bankruptcy.
• You want to protect co-signers on your debts. If you file a Chapter 7 bankruptcy, creditors can still pursue the other people on the loans. They can actually demand that a cosigner pay the debt in full, although they will likely be willing to let the cosigner pay the arrears and continue with the scheduled payments.
• Your income is too high to pass the Chapter 7 means test. The means test requires that you make less than your state’s median income to file Chapter 7 bankruptcy. If you make more than this, you should consider Chapter 13 or even debt consolidation.
• You can afford the monthly plan payments and still pay your regular bills. If the trustee does not believe you can do this, they will not approve your plan, and the court will dismiss your bankruptcy case.
• You need to cure tax debt or other priority debts, and you need to do it over time. If you are not interested in a long-term payment plan (three to five years), Chapter 13 is not for you.

If the above statements apply to you and your financial situation, then Chapter 13 may be the best solution. Otherwise, you may want to consider Chapter 7 bankruptcy or another solution altogether. If the following statements apply to your current situation, filing for Chapter 7 bankruptcy might be a better fit:

• You have no regular income or an unstable income
• Your debts exceed the Chapter 13 limits ($526,700 unsecured / $1,580,125 secured)
• You have no property worth keeping (no home, no car, no equity, etc.)
• You want the fastest debt relief possible (Chapter 7 takes about three to four months)
• You can’t commit to a strict budget for between three and five years
• You have mostly unsecured debt and qualify for Chapter 7
• Your disposable income is insufficient to fund a repayment plan
• You prefer an immediate discharge without ongoing obligations
• You are looking for the court to wipe out your debts

There is nothing wrong with wanting to eliminate your debt. Bankruptcy is a tool for people who find themselves in over their heads with debt. As long as you’re responsible about your finances and don’t expect to use bankruptcy as the proverbial “Get Out of Jail Free Card” that some debtors tend to believe, Chapter 7 bankruptcy might be a better choice. Be aware that it carries a more severe hit to your credit rating.

Advantages of Chapter 13 Bankruptcy

There are advantages and disadvantages to filing a Chapter 13 bankruptcy. Weighing the pros and cons can help you decide if this solution is the best fit for your personal situation. When you meet with a bankruptcy attorney, they will likely have you complete a checklist that will help them determine which type of bankruptcy is best for you.

Keep the following advantages of Chapter 13 in mind while figuring out your next move.

Keep Your Property and Stop Foreclosure

If you cannot afford your mortgage payments, a Chapter 13 can help you prevent foreclosure. Once you file your petition, the automatic stay stops the foreclosure process immediately. You can then catch up on missed payments over the three- to-five-year plan period while keeping your home.

Time To Catch Up on Debts

A Chapter 13 gives you more time to pay off large debts, with up to five years to repay what you owe. This can make managing significant secured debts easier than trying to pay everything at once.

Once you complete a repayment plan under Chapter 13, individual creditors can’t force you to pay them in full. Unsecured creditors often receive only a percentage of what you owe, which is based on your disposable income. The court will discharge the rest.

Protection for You and Your Co-Signers

Filing bankruptcy triggers the automatic stay, which stops collection activity, legal action, wage garnishment, and repossession. This gives you breathing room to get your finances under control.

During your Chapter 13 plan, the co-signer also enjoys the protection of the automatic stay. This means family members and friends who co-signed a loan for you won’t be harassed by creditors while you’re making monthly payments through your plan.

Better for Your Credit Than Chapter 7

A Chapter 13 won’t hurt your credit score as much as a Chapter 7 bankruptcy. While both damage your credit, Chapter 13 shows you’re repaying your debts, which creditors view more favorably.

A Chapter 13 bankruptcy will stay on your credit report for up to seven years, but it doesn’t look as bad as multiple charge-offs, repossessions, and lawsuits. It also comes off your credit report in seven years versus ten years for Chapter 7.

Cons of Chapter 13 Bankruptcy

While there are many advantages of filing for Chapter 13 bankruptcy, it’s not a magic fix. There are also downsides to filing this type of bankruptcy. Let’s take a look at some of the potential negatives.

Long Time Commitment and Restrictions

It takes three to five years to complete your Chapter 13 plan. You must stick to a strict budget and make all plan payments on time. If not, the court will dismiss your case, and you won’t receive your discharge.

It’s common to lose all your credit cards during your Chapter 13 bankruptcy. The bankruptcy court requires you to surrender your cards, and you can’t take on new debt without court approval.

You’ll be locked into a budget approved by the bankruptcy trustee for the entire three-to-five-year period. The trustee monitors your finances, and you must report any changes in your income. Taking on new debt or making large purchases requires court permission.

Credit Impact

Your credit report will show a Chapter 13 for up to seven years. While this is better than the ten years it takes for a Chapter 7 to come off your report, it will still impact your ability to get credit.

Bankruptcy can make it nearly impossible to get a new mortgage. Most lenders require you to complete your Chapter 13 plan before applying for a mortgage, meaning you may wait more than three or five years to buy a home.

Higher Costs

Filing bankruptcy is not cheap. Consider this when deciding which type of bankruptcy to file. Some of the costs associated with a Chapter 13 bankruptcy include:

• Higher total costs than Chapter 7 ($3,500-$5,000+ vs. $1,500-$3,000)
• Higher attorney fees, filing fees, and trustee commission (percentage of plan payments)
• You must pay these costs over time while repaying your other debts
• The total amount you’ll pay to creditors and the costs of a Chapter 13 are often much higher than they are for Chapter 7

When you meet with a bankruptcy lawyer, ask them to explain these costs. Request to know how much their fee will be and how they accept payment.

Restrictions on Future Bankruptcies

You can’t file for Chapter 7 bankruptcy if you filed a Chapter 13 in the last six years. Declaring bankruptcy under Chapter 13 can make it harder to file Chapter 7 later if your financial situation changes.

Non-Dischargeable Debts

Chapter 13 bankruptcy will not relieve you of your obligations to pay child support, alimony, or student loan debt. You may still have to pay other debts as well, such as a mortgage lien.

The bankruptcy court will not discharge the following debts upon the completion of your Chapter 13 plan:

• Recent taxes (less than three years old)
• Tax liens (remain on property)
• Debts from fraud or willful injury
• DUI-related debts
• Criminal fines and restitution

You must either pay these debts in full as part of your payment plan or expect them to remain due after discharge.

Impact on Co-Signers

You must let your bankruptcy lawyer know if there are any co-signers on your debts. The decision to file Chapter 13 will impact them as well.

Some of the consequences for your co-signers include:

• The automatic stay for co-debtors ends at the end of your Chapter 13 plan
• After your bankruptcy discharge, your creditors can pursue your co-signers for any unpaid debts
• If you don’t complete your plan, co-signers become immediately liable for the remaining debts
• Co-signers are not protected at all for business debts

If you have additional questions about the impact your bankruptcy will have on co-signers, talk to a bankruptcy attorney. They can answer your questions and explain the plan to your co-signers.

Thinking About Filing Chapter 13? Consult a Local Bankruptcy Attorney

If you’re thinking about filing for bankruptcy, it’s a good idea to speak with an attorney first. An experienced bankruptcy lawyer will review your financial situation and help you decide how best to proceed. Contact a local bankruptcy law firm and schedule a free initial consultation.