How To File Chapter 13 Bankruptcy: Step-by-Step Guide

Chapter 13 bankruptcy is the second most common type of personal bankruptcy after Chapter 7. You’ll need to take several steps to file Chapter 13. After filing, you’ll stick with a 3-5-year repayment plan to get a successful discharge. Because Chapter 13 is complicated, it’s advisable to hire a bankruptcy attorney. Most people who represent themselves in Chapter 13 cases aren’t successful.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is often called a wage earner’s bankruptcy or reorganization. You must commit to a 3-5-year payment plan.

Under this plan, you’ll make monthly payments to a bankruptcy trustee. The trustee distributes the money to your creditors. Your monthly payment is based on your income, living expenses, and debt types. You must show enough disposable income to make required monthly payments.

If you complete the payment plan successfully, remaining eligible debts will be discharged. You won’t have to pay them back.

Step-by-Step Guide To Filing Chapter 13 Bankruptcy

An experienced attorney will know the Bankruptcy Code and legal requirements. Here are the 11 steps to file Chapter 13 bankruptcy.

Step 1: Collect Your Documents

First, run your credit report from the three major agencies. These are Experian, TransUnion, and Equifax. You can get a copy of your credit reports for free each week.

Find out how much debt you owe and who your creditors are. Not all debts appear on your credit report. You’ll be required to disclose all debts on your bankruptcy forms. Medical debts, tax debts, and certain fees aren’t usually listed on credit reports.

You will need these documents:

• Tax returns for the past four years
• Pay stubs or proof of income for the last six months
• Bank account statements from the past 3-6 months
• Recent mortgage statements and real estate tax bills
• Residential lease agreement (if you rent)
• Recent retirement account or brokerage statements
• Valuations or appraisals of any real estate you own
• Recent car loan statements
• Any other documents about your assets, debts, or income

These documents help you get a complete picture of your finances. Having them available makes filling out bankruptcy forms easier.

Step 2: Analyze Your Debt

Now that you have a list of debts, it’s time to analyze. Write what type each debt is next to it. Credit card debt, medical bill, personal loan, etc.

Figure out whether your debts are secured or unsecured. Secured debts are backed by collateral. Mortgages and car loans are common secured debts.

Unsecured debts include credit card debts, medical bills, and payday loans. Any debt not attached to specific property is unsecured.

Determine which debts are priority debts and which are non-priority. Common priority debts are child support payments and certain tax debts. Whether debts are secured or unsecured impacts your repayment amount. It also affects how your bankruptcy trustee distributes Chapter 13 plan payments.

Step 3: Take an Inventory of Your Property

Make a list of all the property you own. Write down how much each item is worth. You’ll need to know what you have and what you can protect.

Filing Chapter 13 bankruptcy allows you to protect and keep all property. But your Chapter 13 plan requires you to pay certain creditors. The amount equals the value of your unprotected property. You’ll pay the same amount creditors would get in a Chapter 7 case.

Step 4: Create a Budget and Figure Out Your Income

Create a budget to see if you have enough monthly income. You need to cover both living expenses and Chapter 13 plan payments. If you don’t have enough income, you won’t be able to proceed. You must prove to bankruptcy courts that you have a feasible plan.

Step 5: Take the Credit Counseling Course

Before filing your Chapter 13 bankruptcy forms, complete an approved credit counseling course. The course takes about an hour. You can complete it online or by telephone. The fee ranges from $10 to $50, depending on the provider. You may get this fee waived if your household income is under 150% of the federal poverty guideline.

Once you complete the course, you’ll receive a certificate of completion. Keep a copy and file it with your bankruptcy paperwork.

Step 6: Complete the Bankruptcy Forms

Completing forms will likely be the most time-consuming step. The bankruptcy forms ask about everything you make, spend, own, and owe.

There are 23 separate forms, totaling roughly 70 pages. You must enter all financial data. You need to give the court a full and accurate picture. Part of filling out forms includes drafting your Chapter 13 repayment plan.

If you work with a bankruptcy attorney, they’ll help complete the forms. They’ll draft the repayment plan proposal you present to the bankruptcy court.

Step 7: File the Chapter 13 Bankruptcy Petition and Pay the Filing Fee

When you’ve completely filled out and reviewed your forms, print them out. Sign the signature pages and bring them to court. Don’t forget to include your credit counseling certificate. If you’re working with a lawyer, they’ll send completed forms to the bankruptcy court.

The filing fee for Chapter 13 is $313. You’ll need to pay the full amount when you file. There is no fee waiver option for Chapter 13 like there is with Chapter 7.

Step 8: Send Documents to Your Trustee

After you file your bankruptcy petition, the court assigns a bankruptcy trustee. The trustee oversees your case and repayment plan. The trustee will ask you to send financial documents. These include pay stubs, tax returns, and bank statements.

Your trustee uses these documents to verify information in your bankruptcy forms. If you don’t provide documents as requested, your case can be dismissed.

Step 9: Attend the 341 Meeting of Creditors and Your Confirmation Hearing

Approximately a month after filing, you’ll meet with your Chapter 13 trustee. You won’t meet the judge assigned to your case on this day. Your creditors can attend your 341 meeting, but they rarely show up.

At the meeting, you’ll verify your identity and provide supporting documents. Your trustee reviews your documents. They’ll make sure your bankruptcy forms are filled out correctly. They verify your proposed repayment plan is feasible.

The next appearance is at your confirmation hearing. You’ll appear in front of a bankruptcy judge. The judge decides whether to confirm your Chapter 13 plan. If there are no objections by your trustee or creditors, your case will be confirmed.

Step 10: Keep Up With Your Chapter 13 Plan Payments

If you’ve made it this far, congratulations on getting your plan approved! Now you need to continue making monthly plan payments for 3-5 years. After that, your case successfully concludes and your bankruptcy discharge is entered.

The first payment is due within 30 days of filing. Until your case is confirmed, monthly plan payments can change. If you fall behind on payments and can’t catch up, your case will be dismissed. You won’t receive a discharge.

Step 11: Take the Debtor Education Course and Receive Your Discharge

Once you complete your payment plan, you’ve made it to the end! Taking the debtor education course is the last step before receiving your discharge.

As long as you’ve followed the terms in your plan, you’ll receive a discharge. Any unpaid balances on most unsecured debts will be eliminated.

How Long Does Chapter 13 Bankruptcy Take?

Chapter 13 bankruptcy usually takes 3-5 years from start to finish. It’s based on a long-term repayment plan. You pay back some or all of your debt over time.

The exact length of your plan depends mostly on your income.

• If your income is below your state’s median for your household size, you may finish in three years.
• If it’s above the median, you’ll likely be on a five-year plan.

Even if you qualify for a shorter plan, you might choose a five-year plan. Longer plans have smaller monthly payments.

Once you complete all required plan payments, the court issues your discharge. Your discharge wipes out most remaining eligible debts. But if you miss payments or run into financial setbacks, your case could take longer. It could even be dismissed.

Chapter 13 can be a powerful tool if you need time. It helps you catch up on mortgage or car loan payments. But Chapter 13 is a long commitment.

How Does a Chapter 13 Repayment Plan Work?

Your Chapter 13 repayment plan is central to your case. It lays out exactly how much you’ll pay each month. It shows which debts will be paid during the plan. Most repayment plans last 3-5 years. Your monthly payment is based on your income, living expenses, and debt types.

When you file your plan with the court, you propose how money will be split. You’ll usually start making payments to the trustee within 30 days of filing. You start before the court approves your plan. Once the judge confirms the plan, it becomes a binding court order.

Not all debts are treated the same in Chapter 13:

• Secured debts, like car loans or mortgages, often must be paid in full. But Chapter 13 can often help lower your monthly amount.
• Priority debts, like back child support or certain taxes, must be paid in full.
• Unsecured debts, like credit cards or medical bills, might be partially paid or not paid at all. It depends on your disposable income.

If you make every payment and follow plan rules, most remaining unsecured debts will be erased. But if you miss payments or can’t keep up, your case could be dismissed. It could be converted to Chapter 7, which has different rules.

How Does Chapter 13 Affect Your Credit?

Filing Chapter 13 will show up on your credit report. It can lower your credit score initially. It stays on your credit report for up to seven years from filing.

While this may make getting new credit harder at first, many people see improvement. Credit starts to improve while they’re making on-time payments during the repayment plan. You’re actively reducing debt and showing more financial stability.

Some filers qualify for new credit before their plan is over. You might get a secured credit card or even a car loan. But this often requires court approval. Big loans, like mortgages, may be harder to get until after discharge.

Keep in mind: Chapter 13 bankruptcy can be a step toward rebuilding your credit. It’s especially helpful if your credit was already damaged by missed payments.

Pros and Cons of Chapter 13 Bankruptcy

Chapter 13 bankruptcy can be helpful if you need time to catch up. It works especially well for secured debts like mortgages or car loans. But it’s not the right fit for everyone. Here are some key pros and cons.

Pros of Chapter 13 Bankruptcy

Chapter 13 has some upsides, including:

• You can keep your property. Even if you’re behind on mortgage or car payments, Chapter 13 allows you to catch up. You can avoid foreclosure or repossession.
• You get protection from creditors. As soon as you file, the automatic stay goes into effect. It stops most collection actions, including wage garnishments, lawsuits, and harassing calls.
• You may be able to reduce certain debts. Chapter 13 can help you lower interest rates. You can reduce the balance on some secured debts through cramdown. You can stretch out payments to make them affordable.
• It can help with non-dischargeable debts. While some debts can’t be wiped out, Chapter 13 gives you a structured way. You can pay them off over time.
• It may be your only option. If you don’t qualify for Chapter 7 or have too much equity, Chapter 13 may be your best path forward.

A cramdown lets you reduce the balance on certain secured debts. The balance is reduced to the current value of the property. The rest of the balance becomes unsecured debt. It may not have to be paid in full.

Cons of Chapter 13 Bankruptcy

Chapter 13 also comes with downsides, including:

• It’s a long commitment. Chapter 13 cases usually last 3-5 years. You’ll need to stick to a strict budget. You must make every payment on time.
• You’ll be under financial supervision. You can’t take on new debt during the plan without court approval. You can’t sell major assets without permission.
• Many cases don’t succeed. A lot of people start Chapter 13 but don’t finish. Missed payments, unexpected expenses, or job loss lead to dismissal before discharge.
• It can be expensive. Attorney fees and court costs are often higher than Chapter 7. You also repay more of your debts.
• You might lose your tax refunds. In many Chapter 13 cases, the trustee takes your federal or state tax refunds. They use refunds during your plan to help pay off debts.

Chapter 13 Alternatives

Chapter 13 has a high failure rate. It’s very difficult for most people to stick with a strict budget for several years. If you’re researching your options, also look at Chapter 7 bankruptcy. Consider other debt relief options like debt management plans, debt consolidation, and debt settlement.

Which Is Better: Chapter 13 or Chapter 7 Bankruptcy?

Generally speaking, Chapter 7 is the quickest way to wipe out debt. You don’t have to repay any portion of it.

But there are income limits and eligibility requirements. If your income is too high and you don’t pass the means test, you may not be eligible. That’s one main reason people look to Chapter 13 bankruptcy.

The other big reason some people pursue Chapter 13 is property. They have assets such as a home or expensive car. They don’t want to risk losing them in bankruptcy.

In Chapter 7, exemptions help protect most property considered essential for daily living. But if you own a luxury car, expensive jewelry, or have lots of home equity, exemptions in most states won’t cover those items.

If you own something not covered by an exemption, the bankruptcy trustee can sell it. The trustee gives proceeds to your creditors. That’s why Chapter 7 is sometimes called liquidation bankruptcy.

Every bankruptcy case is different. Only you can decide which type is best for your circumstances. You can speak with a bankruptcy attorney for free to discuss your options.

Which Is Better: Chapter 13 or Debt Relief?

Bankruptcy is a powerful form of debt relief. But there are several other debt relief options available, including:

• Debt management plans (DMPs): Similarly to Chapter 13, a DMP is a multiyear debt repayment plan. It works best if most debt is from credit cards. A DMP can save you money by reducing interest. These plans are overseen by credit counselors.
• Debt consolidation loans: Consolidating debt can help streamline repayment and reduce interest rates. You’ll usually need a good credit score to get a consolidation loan with a low rate. Most consolidation loans are personal loans.
• Debt settlement: Settling debt allows you to pay less than the full amount. To successfully settle debt, you usually need to be behind on payments. You’ll need access to a lump sum of money.

If you want to discuss your options or learn more about debt management plans, our partner Cambridge Credit Counseling can help. Cambridge is an NFCC-accredited nonprofit.

FAQs About Chapter 13 Bankruptcy

It’s normal to have lots of questions about bankruptcy. Here are some commonly asked questions about filing Chapter 13.

Can I File Chapter 13 Bankruptcy if I’m Unemployed?

You need regular income to file Chapter 13. If you’re unemployed, you probably won’t qualify. You must show the court you can make monthly plan payments. Income can come from a job, self-employment, Social Security, or other regular sources. If you lose your job after filing, talk to your attorney immediately. You may be able to modify your plan or convert to Chapter 7.

Can I File Chapter 13 Bankruptcy Without a Lawyer?

You can legally file Chapter 13 without a lawyer. But it’s not recommended. Chapter 13 is very complex and has a high failure rate. Most people who file without an attorney don’t succeed. You’ll need to draft a repayment plan, negotiate with creditors, and handle court procedures. A bankruptcy attorney knows the requirements and can help you avoid mistakes. Most bankruptcy attorneys offer free consultations.

Can I File Chapter 13 Bankruptcy Without My Spouse?

Yes, you can file Chapter 13 without your spouse. But there are important considerations. Your spouse’s income may still be included in calculating your plan payment. Any joint debts will still affect your spouse if you file alone. Your spouse’s credit won’t be impacted by your bankruptcy. But creditors can still pursue your spouse for joint debts. Discuss this decision with a bankruptcy attorney before filing.

Can Small-Business Owners Use Chapter 13 Bankruptcy for Business Debt?

Yes, small-business owners can use Chapter 13 for business debt. But only if you’re a sole proprietor. If your business is incorporated or an LLC, you can’t include business debts. Chapter 13 is only for individuals. If you personally guaranteed business debts, you can include those in your Chapter 13. Small business owners may also want to consider Chapter 11 or Chapter 7.

Will I Still Get My Tax Refund During Chapter 13 Bankruptcy?

Probably not. In most Chapter 13 cases, the trustee will take your tax refunds. Refunds are used to pay creditors through your plan. Some trustees allow you to keep a small portion. But most of it goes toward your plan. Ask your attorney about your district’s rules. You may be able to adjust your withholding to avoid large refunds.

Can Tax Debts Be Discharged in Chapter 13?

Some tax debts can be discharged in Chapter 13. But they must meet specific requirements. The taxes must be income taxes. They must be at least three years old. You must have filed tax returns for at least two years before filing bankruptcy. The IRS must have assessed the tax at least 240 days before you file. Recent tax debts must be paid through your Chapter 13 plan. Speak with a bankruptcy attorney about your specific tax situation.

Do I Need to File Tax Returns Before Filing Chapter 13?

Yes, you must file tax returns before filing Chapter 13. You need to file all required tax returns for the four tax years before filing. If you haven’t filed returns, the IRS can object to your case. The trustee can also request dismissal. File all missing returns before you file bankruptcy. You’ll need to provide copies of your tax returns to the trustee. Keep this requirement in mind when planning to file.