Last reviewed November 20, 2025.
2025 Legal Update: This guide has been revised to reflect the inflation-adjusted debt limits and exemption figures effective April 1, 2025, as well as the latest Department of Justice guidance on student loan dischargeability.
When you think of the term “bankruptcy,” you’re most likely thinking of Chapter 7. In a Chapter 7 bankruptcy, you surrender your nonexempt assets to the court-appointed bankruptcy trustee and the trustee sells them. Your unsecured creditors get the proceeds of the sale and you get a discharge of the remainder of your debt.
That’s not the only type of bankruptcy that’s open to consumers, though. You also have the option to file under Chapter 13.
Below, we’ll discuss how Chapter 13 works, including the payment plan and confirmation of payment plan; how to get a Chapter 13 discharge; and if Chapter 13 is right for you.
How does Chapter 13 bankruptcy work?
Under Chapter 13, you don’t have to surrender any of your assets. Instead, you’ll sit down with your creditors and the bankruptcy trustee to come up with a payment plan for part or all of your debts. You’ll make monthly payments for three to five years and at the end of the plan, the court will discharge your remaining debt.
The Payment Plan
First, you’ll need to know how long your plan is going to last. To determine the length of your plan, the court will first average your income over the last six months. Your income can come from any source, including wages, investment income, rental income, and unemployment benefits. You can exclude Social Security benefits and mandatory retirement plan payments from your income.
If your average monthly income for the six months prior to filing is less than the state median, your plan will typically last for three years. If it’s more, your plan will generally last for five years. In California: As of data for cases filed between May 15, 2025, and October 31, 2025, the median annual income is approximately $77,221 for a one-earner household, and $135,505 for a four-person household. (See U.S. Trustee Program/DOJ median income table) You can end the plan early, but in order to do so you must repay all of your secured and unsecured creditors in full.
Next, you’ll need to determine your minimum monthly payment. You have to fully repay certain debts through your bankruptcy plan, so your minimum payment will be the amount that allows you to repay all of those priority debts over the course of your plan. Priority debts include back child support and alimony and certain taxes. If you want to keep your home, your mortgage arrears must be fully repaid through the plan. You’ll also have to keep up with your regular mortgage payments. If you’re surrendering your home, you will not have to repay any arrearages through your plan.
If you’re behind on your auto loan and want to keep it, you may be able to repay the loan up to the value of the car over the course of your plan. This is called a cram-down because you don’t have to pay the full value of the loan. You’ll also have to fully pay administrative fees. These include filing fees, attorney fees, and a percentage fee (usually from 3-10%) for the trustee.
Determining Disposable Income
If your average monthly income for the last six months is less than the state median, you’ll generally only have to make your minimum payment and you won’t have to pay anything toward your unsecured debts. If you earn more than the median, you’ll have to pay your disposable income to your unsecured creditors every month. To calculate your disposable income, start with your average monthly income for the last six months. Then you’ll subtract your allowed expenses. The remainder is your disposable income.
The expenses are not what you actually pay; they’re determined by national and state standards. The national standards for food, clothing, and other items are subject to annual updates by the IRS and U.S. Trustee Program.
Transportation costs also have local standards. If you have a car and living in L.A. County, you can deduct $353 for operating costs. If not, you can deduct $244 for public transportation costs.
Once you’ve subtracted the minimum monthly payments and these expenses from your average monthly income, you have your disposable income.
Confirmation of Your Chapter 13 Plan
Once you’ve determined your monthly payments and filed your Chapter 13 plan, you must receive confirmation of the plan from the bankruptcy court. Without confirmation, the plan isn’t worth anything.
After you’ve filed the plan, your creditors and the bankruptcy trustee have an opportunity to object to it. A judge will hear and rule on any objections at the confirmation hearing. Creditors will generally only object that they’re not being paid enough. You’re most likely to face a creditor objection from your mortgage lender over the repayment of arrearages or from your auto lender over the value of the car.
The bankruptcy trustee may object on many different grounds. Her job is to ensure that your bankruptcy plan follows all the rules. First, she’ll make sure that your plan payments are feasible. If your disposable income is less than the proposed monthly payment, for example, you’ll have to convert your case to Chapter 7. She’ll also make sure that creditors are getting enough. She’ll check that you’ve listed all of your income and that the plan is reasonable. She’ll also make sure that your creditors are getting as much or more than they would if you filed under Chapter 7. If they’re not, you’ll have to convert to Chapter 7. 11 U.S.C. § 1325.
The “Best Interest of Creditors” Test
The Chapter 13 Trustee will ensure your unsecured creditors receive at least as much as they would have received if your assets were liquidated in a Chapter 7 case. This is known as the “Best Interest of Creditors” test.
Good News for 2025: Because federal and state exemption limits increased on April 1, 2025, to account for inflation, you may be able to protect a higher value of assets. In many cases, higher exemptions mean there is less “non-exempt equity” available, which can lower the minimum amount you are required to pay to unsecured creditors to obtain your discharge.
Who Qualifies? The 2025 Debt Limits
To qualify for a Chapter 13 discharge, you must first be eligible to file the case. As of April 1, 2025, the Bankruptcy Code requires that your debts fall below the following inflation-adjusted thresholds:
- Unsecured Debt Limit: $526,700
- Secured Debt Limit: $1,580,125
Important Note: The temporary “combined” debt limit of $2.75 million expired in June 2024. You must now meet both the secured and unsecured limits individually. If your debts exceed these caps, you may still find relief through Chapter 11 Subchapter V, which has a significantly higher eligibility limit ($3,424,000).
Final Steps to Discharge
When you complete all of your plan payments, the court will prepare your discharge. To finalize this process, you must submit specific paperwork proving you are in compliance with the law:
- Director’s Form 2830: You must file this updated form certifying that you are current on all Domestic Support Obligations (child support and alimony).
- Financial Management Course: You must file certification that you have completed the required debtor education course.
Once these forms are filed and the Trustee verifies your payments (typically using Official Form 122C-2), the court will issue the discharge order, permanently forbidding creditors from collecting the discharged debts.
Certain debts cannot be discharged in bankruptcy. Student loans, child support, alimony, debts that arise from personal injury caused by driving under the influence, and criminal fines cannot be discharged. If you don’t fully pay them under your Chapter 13 plan, you’ll have to pay them afterward. You may receive a discharge for debts arising from fraud and debts for damages in a civil case unless the creditor objects, in which case your debt will not be discharged. 11 U.S.C. §§ 1328, 523(c); Fed. R. Bankr. P. 4007(c).
A New Path for Student Loans
Historically, student loans were extremely difficult to discharge. While student loans are not automatically wiped out, you can now file an Attestation Form detailing your income and expenses.
If this form demonstrates that you lack the present and future ability to repay the loans while maintaining a minimal standard of living, the government may stipulate to a discharge without the need for a costly trial. This is a significant shift from previous years.
Is Chapter 13 right for me?
The answer depends on your circumstances. Chapter 13 is a complicated process with detailed rules and regulations and is best handled by an attorney. If you’re struggling with debt and considering filing for bankruptcy, reach out to one of our experienced bankruptcy attorneys to discuss your circumstances and your options. Note: Filing for Chapter 13 bankruptcy without experienced legal counsel carries significantly higher risk of dismissal or conversion. Consult an attorney familiar with consumer bankruptcy in your district.
Borowitz & Clark has years of experience helping thousands of consumers successfully resolve their financial issues. Contact us today or call us at (877) 439-9717 to schedule a free consultation, which we offer at seven conveniently located offices.