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How Chapter 13 Works — Bankruptcy Law Basics

A chapter 13 case begins by filing a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. Unless the court orders otherwise, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. Fed. R. Bankr. P. 1007(b). The debtor must also file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. 11 U.S.C. § 521. The debtor must provide the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. § 302(a). (The Official Forms may be purchased at legal stationery stores or downloaded from the Internet at www.uscourts.gov/bkforms/index.html . They are not available from the court.)

As of October 17, 2005, the courts must charge a $150 case filing fee and a $39 miscellaneous administrative fee. Normally the fees must be paid to the clerk of the court upon filing. With the court's permission, however, they may be paid in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. The number of installments is limited to four, and the debtor must make the final installment no later than 120 days after filing the petition. Fed. R. Bankr. P. 1006(b). For cause shown, the court may extend the time of any installment, as long as the last installment is paid no later than 180 days after filing the petition. Id. The debtor may also pay the $39 administrative fee in installments. If a joint petition is filed, only one filing fee and one administrative fee are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case. 11 U.S.C. § 1307(c)(2).

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:

• A list of all creditors and the amounts and nature of their claims;
• The source, amount, and frequency of the debtor's income;
• A list of all of the debtor's property; and
• A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household's financial position.

When an individual files a chapter 13 petition, an impartial trustee is appointed to administer the case. 11 U.S.C. § 1302. In some districts, the U.S. trustee or bankruptcy administrator 2 appoints a standing trustee to serve in all chapter 13 cases. 28 U.S.C. § 586(b). The chapter 13 trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors. 11 U.S.C. § 1302(b).

Filing the petition under chapter 13 "automatically stays" (stops) most collection actions against the debtor or the debtor's property. 11 U.S.C. § 362. Filing the petition does not, however, stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a "consumer debt" from any individual who is liable along with the debtor. 11 U.S.C. § 1301(a). Consumer debts are those incurred by an individual primarily for a personal, family, or household purpose. 11 U.S.C. § 101(8).

Individuals may use a chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time. Nevertheless, the debtor may still lose the home if the mortgage company completes the foreclosure sale under state law before the debtor files the petition.11 U.S.C. § 1322(c). The debtor may also lose the home if he or she fails to make the regular mortgage payments that come due after the chapter 13 filing.

Between 20 and 50 days after the debtor files the chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the debtor files. Fed. R. Bankr. P. 2003(a). During this meeting, the trustee places the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of the plan.11 U.S.C. § 343. If a husband and wife file a joint petition, they both must attend the creditors' meeting and answer questions. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the creditors' meeting. 11 U.S.C. § 341(c). The parties typically resolve problems with the plan either during or shortly after the creditors' meeting. Generally, the debtor can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with the trustee prior to the meeting.

In a chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002(c). A governmental unit, however, has 180 days from the date the case is filed file a proof of claim.11 U.S.C. § 502(b)(9).

After the meeting of creditors, the debtor, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor's chapter 13 repayment plan.

• In North Carolina and Alabama, bankruptcy administrators perform similar functions that U.S. trustees perform in the remaining forty-eight states. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the U.S. trustee program is administered by the Department of Justice. For purposes of this publication, references to U.S. trustees are also applicable to bankruptcy administrators.

Last reviewed October 2023

Bankruptcy Law Center Contents   

• Bankruptcy Law Center
• Automatic Stays Under Bankruptcy Law
• Chapter 7 Bankruptcy Law
• Chapter 13 Bankruptcy Law
• Chapter 11 Bankruptcy Law
• Chapter 12 Bankruptcy Law
• Repeat Bankruptcy Filings & Legal Requirements
• Business Bankruptcy Law
• Emergency Bankruptcy Filings & Legal Requirements
• Involuntary Bankruptcy Filings & Legal Requirements
• Credit Counseling and Debtor Education Courses Legally Required for Bankruptcy
• Joint Bankruptcy Petitions for Married Couples & Legal Implications
• Bankruptcy Exemption Laws
• Collections Laws and Bankruptcy
• Bankruptcy Legal Procedures
• Eviction Legal Issues Related to Bankruptcy
• Foreclosure Legal Issues Related to Bankruptcy
• Lien Avoidance Under Chapter 7 Bankruptcy Law
• Lien Stripping Under Chapter 13 Bankruptcy Law
• How Unemployment Can Legally Affect Filing for Bankruptcy
• Protecting Your Assets During the Bankruptcy Legal Process
• Tax Law Issues Related to Bankruptcy
• Alternatives to Bankruptcy Under the Law
• Bankruptcy Legal Forms
• Elderly People Filing for Bankruptcy & Distinctive Legal Concerns
• Divorce Law Issues Related to Bankruptcy
• Preparing for the Bankruptcy Legal Process
• Employment Discrimination Laws Related to Bankruptcy
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• Managing Your Debt

Why Do So Many Chapter 13 Cases Fail?

Emotions, fortitude, and motivation, lack of resources.

• Disruption in the Flow of Income

Filing Without an Attorney

Buying time.

Chapter 13 bankruptcy is sometimes referred to as a reorganization bankruptcy. You set up a three- to five-year payment plan to reduce or pay off your debt. The court reviews your assets and income when deciding whether to approve your plan, and the plans don't leave a lot of room for luxuries.

Chapter 13 cases require a lot of motivation to carry through three to five years of voluntary austerity, but that's just one reason they fail. Learn whether Chapter 13 is worth it and why there's a low success rate with this type of bankruptcy.

Chapter 13 is challenging. The pre-petition prep process is probably the most emotionally wrenching period of bankruptcy . Debtors (those filing for bankruptcy) may be asking themselves:

• Will this Chapter 13 save my house (or car)?
• Can I afford the payments?
• Why do I have to gather all of this information?
• Will the court approve my plan?
• Am I doing the right thing?
• What if (my boss, my neighbors, the PTA) finds out?

Chapter 13 isn't easy to carry out, and many things happen along the way that could derail a case.

Many Chapter 13s are filed to stop a foreclosure or some other unwanted event like a car repossession or trial on a lawsuit over a debt. Often, clients don't consult an attorney until the very last minute, which doesn't give the attorney much time to review the client's financials before the case must be filed. That has to wait until later when they're gathering all of the information needed for the bankruptcy schedules .

Sometimes it's not until the attorney has access to the particulars on income and expenses that they see that the client can't afford to keep the house or late model car.

Disruption in Income

Any disruption in the flow of income, like illness or job loss, will make it very difficult to keep or get back on track with a Chapter 13 repayment plan. Children are born or their needs change and marriages begin and end. It's hard to go five years without credit, major car repairs, replacement of an appliance, insurance deductibles, emergency travel, or even a vacation. While some of these items can be built into a Chapter 13 budget, but there's not much room for savings. Creditors don't like it when you hold back money that you could be paying them. 

Clients also get tired and want out. Again, this is a function of time as much as anything else. Five years on a strict repayment plan is exhausting. Many clients decide that it's just not worth it, especially if they filed Chapter 13 to save an asset like a house.

According to the United States Courts, about 9% of bankruptcy cases are filed by debtors pro se (meaning on their own without attorney assistance).

It's possible to get through a Chapter 7 case without an attorney, but not advisable. Self-filed Chapter 13 cases are rarely successful. Most don't get beyond the plan confirmation stage, if they get that far. Chapter 13 plans are subject to provisions like the "Best Interest of Creditors Test," the "Good Faith Test," and " Chapter 13 feasibility ." Experienced bankruptcy lawyers, trustees, and judges argue over these provisions all the time, so they would be extremely challenging for a layperson to navigate.

This is borne out in a study conducted by the Bankruptcy Court for the Central District of California. The Central District has a particular interest in this issue because it has more pro se filers than any other district in the country. The 2018 study found that approximately 63.8% of pro se Chapter 7 filers obtained a discharge (compared with 94.1% of those represented by an attorney).  Less than 3% of those filing Chapter 13 pro se were able to get their repayment plans confirmed (compared with 69.1% of those represented by an attorney).  

Filers without attorneys are more successful with Chapter 7 cases because in many ways, they're simpler. There's no payment plan to negotiate; you either meet the means test or you don't.

There are also legitimate strategic reasons to leave Chapter 13 before the payments are completed. 

Chapter 13 debtors file for any number of reasons. Many file Chapter 13 to take advantage of the automatic stay , which halts collection actions, without any intention of actually completing a case. Common reasons to file with no intention of completing the payment plan include:

• Having time to sell property
• Slowing down a lawsuit and negotiating a settlement
• Spreading out attorney fees through plan payments
• Managing student loans.

Not all of the debtors in those cases would necessarily benefit from completing a payment plan and receiving a Chapter 13 discharge. What they needed was time, and filing Chapter 13 provided it. 

United States Courts. " BAPCPA Report—2019 ."

United States Bankruptcy Court, Central District of California. " Self-Represented Litigants and the Court ," Pages 9, 11.

United States Bankruptcy Court, Central District of California. " Self-Represented Litigants and the Court ," Page 13.

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Chapter 13 Flashcards Quizlet

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