Chapter 13 (Individual Reorganization)
Bankruptcy proceeding under 11 U.S.C. §§ 1301-1330 available to individuals with regular income, providing for repayment of debts over 3-5 years through court-approved plan. Allows debtor to retain assets (including non-exempt property) by paying value over plan term. Subject to separate debt limits (for cases filed on or after April 1, 2025, unsecured debts under $526,700 and secured debts under $1,580,125). Common in mortgage cure situations, tax debts, and where Chapter 7 not available (means test failure) or undesirable.
Chapter 13 is the bankruptcy proceeding available to individuals with regular income, providing for repayment of debts over 3-5 years through a court-approved plan. Chapter 13 allows debtors to retain assets (including non-exempt property) by paying value over the plan term, distinguishing it from Chapter 7 where non-exempt assets are liquidated. Chapter 13 is common in mortgage cure situations, tax debt repayment, and where Chapter 7 is not available (a presumption of abuse under the means test) or undesirable (asset retention).
Eligibility, § 109(e)
Chapter 13 eligibility requires: (1) individual (or individual with spouse), no entities; (2) regular income, sufficient to fund plan payments; (3) debt limits, noncontingent, liquidated unsecured debts under $526,700 and secured debts under $1,580,125 (cases filed on or after April 1, 2025). The debt limit is important: high-debt individuals may need Chapter 11 instead. Individuals filing jointly with spouse can use combined income but must satisfy combined debt limits.
Plan structure
Chapter 13 plan must provide: (1) plan term, 3 years (below-median income) or 5 years (above-median income); (2) full payment of priority claims, taxes, domestic support, certain other priority debts; (3) secured creditor treatment, typically retain liens with payment of value over plan term; (4) unsecured creditor treatment, at minimum, what they would receive in Chapter 7 (best interests test); often pro rata of disposable income; (5) regular payments, typically monthly to trustee. Plan administered by Chapter 13 trustee.
Common uses
Chapter 13 typical scenarios: (1) mortgage cure, paying back arrears over plan term while resuming current payments; (2) tax debt repayment, priority tax debts paid over 3-5 years; (3) means test cases, where an above-median debtor's Chapter 7 filing would be presumed abusive; (4) asset retention, protecting non-exempt assets from liquidation; (5) second mortgage stripping, voiding wholly underwater junior liens; (6) protection of co-debtor on consumer debts (§ 1301 codebtor stay). Many filings combine multiple goals.
Discharge, § 1328
Chapter 13 discharge issued after completion of plan payments. Discharge is broader than Chapter 7, covers some debts non-dischargeable in Chapter 7 (so-called "superdischarge"). Excluded from Chapter 13 discharge: (1) certain priority taxes; (2) domestic support obligations; (3) certain student loans; (4) drunk-driving liability; (5) criminal restitution; (6) debts incurred through fraud (with limitations). Hardship discharge available where plan completion impossible due to circumstances beyond debtor's control.
Conversion and dismissal
Chapter 13 cases can be converted or dismissed: (1) conversion to Chapter 7, debtor right or for cause; common when plan completion impossible; (2) dismissal, for cause including failure to make payments, failure to file plan; (3) conversion to Chapter 11, rare; for above debt-limit situations.
For Texas individual debtors, the choice between Chapter 13 and Chapter 7 turns on income, assets, and goals. Relevant questions include whether a realistic budget can support the plan payments, whether a mortgage arrearage needs to be cured, and whether the applicable commitment period is three or five years. Missed plan payments can lead to dismissal or conversion. Creditors typically file a timely proof of claim, review the plan's treatment of their claim, object to plan terms they dispute, and monitor plan performance.