Bankruptcy ✦ Chapter 13
Keep the House. Keep the Car. Catch Up on Your Terms.
Chapter 7 is a clean break. Chapter 13 is a controlled repair. If you have steady income and something worth protecting, whether that is a home in arrears, a vehicle facing repossession, or tax debt the IRS keeps collecting, Chapter 13 puts a federal court between you and every creditor while you catch up over three to five years.
Overview
What is Chapter 13, in plain English?
Chapter 13 is a court-supervised repayment plan for individuals with regular income. You propose a plan, the court confirms it, and you make one monthly payment to the Chapter 13 trustee, who distributes it under the plan’s terms. When the plan ends, the remaining balance on most unsecured debt is discharged under 11 U.S.C. § 1328(a). The Chapter 13 discharge actually reaches some debts Chapter 7 cannot touch, including certain divorce property-settlement obligations. And the whole time, the automatic stay of § 362 holds creditors off, with a bonus Chapter 7 lacks: the co-debtor stay of § 1301 also protects the spouse, parent, or friend who co-signed a consumer debt with you.
- Foreclosures and repossessions stop the moment you file
- Mortgage arrears spread over the life of the plan (§ 1322(b)(5))
- Co-signers protected during the case (§ 1301)
- Priority taxes paid through the plan while penalties stop growing
- Unsecured debt often paid pennies on the dollar, balance discharged
- Plans built by an attorney-CPA to survive trustee scrutiny the first time
The Law
What can a Chapter 13 plan actually fix?
Chapter 13 exists for the debtor with income and a target on their back. The table below is the practical map.
| Problem | What Chapter 13 does | Authority |
|---|---|---|
| Home in foreclosure | Stops the sale and spreads the missed payments over the plan while you resume regular payments | 11 U.S.C. §§ 362, 1322(b)(5) |
| Vehicle repossession | Stops the repo; many loans are restructured through the plan, sometimes at the vehicle’s value rather than the loan balance | 11 U.S.C. § 1325(a)(5) |
| IRS and state tax debt | Priority taxes are paid over the plan term without new penalties accruing; older qualifying taxes are treated as unsecured and mostly discharged | 11 U.S.C. §§ 507(a)(8), 1322(a)(2) |
| Garnishment or levy | Ends the day you file | 11 U.S.C. § 362 |
| Co-signed debts | Creditors must leave your co-signer alone during the case | 11 U.S.C. § 1301 |
Chapter 13 is limited to individuals whose noncontingent, liquidated debts fall under the caps of 11 U.S.C. § 109(e): $526,700 unsecured and $1,580,125 secured for cases filed on or after April 1, 2025. Over either cap, Chapter 11 picks up where Chapter 13 leaves off, and we practice in both.
How long is the plan, and what do you pay?
The commitment period runs off the same New Mexico median-income figures used in the Chapter 7 means test. Below the median for your household size, three years is the baseline. Above it, five. What you pay is not everything you owe; it is your projected disposable income, plus enough to cover priority debts and the arrears you are curing. Unsecured creditors are only guaranteed what they would have received in a hypothetical Chapter 7 liquidation (§ 1325(a)(4)), and because New Mexico’s exemptions protect so much property after the 2023 increases, that floor is often low. Budget arithmetic is the entire game in Chapter 13, which is why having a CPA build the schedules matters.
How does Chapter 13 work in New Mexico specifically?
New Mexico is a single bankruptcy district administered from Albuquerque, with one standing Chapter 13 trustee handling plans statewide. The 341 meeting and most hearings are conducted by phone or video, so a debtor in Las Cruces, Farmington, or Roswell can complete an entire five-year case without traveling. Payments go to the trustee monthly, most filers use payroll deduction or online payment, and the trustee’s percentage fee comes out of distributions rather than arriving as a separate bill.
The quiet power move: Chapter 13 as an IRS strategy
Filing stops IRS levies instantly. Priority taxes get paid over up to five years, often for less per month than an installment agreement, and without penalties continuing to stack. Older income taxes that meet the discharge timing rules ride through as unsecured debt and are mostly wiped out. Before recommending Chapter 13 we pull your IRS transcripts and run the same dischargeability analysis described on our Chapter 7 page, because the difference between filing in March and filing in June can be tens of thousands of dollars.
The Attorney-CPA Difference
The trustee reads budgets for a living. So do we.
- Schedules and plan budgets built to evidentiary standards, not guesswork
- IRS transcript analysis before filing, so tax years land on the right side of the line
- Both chapters priced side by side before you choose anything
- Statewide remote representation from petition through discharge
Questions & Answers
Chapter 13 questions, answered
Is Chapter 13 better than Chapter 7?
Neither is better. They solve different problems. Chapter 7 erases; Chapter 13 restructures. If you are current on secured debts, own only exempt property, and pass the means test, Chapter 7 is usually faster and cheaper. If you are behind on a house or car you intend to keep, or you carry priority tax debt, Chapter 13 is often the only tool that works.
Can Chapter 13 stop a foreclosure sale set for next week?
Yes, if the petition is filed before the sale happens. The automatic stay takes effect at the moment of filing, not when the lender gets around to reading its mail. Please do not wait until the day before to call.
Do I have to repay all my credit card debt?
Rarely. Unsecured creditors receive your disposable income for the plan term. In many New Mexico cases that works out to pennies on the dollar, and whatever remains unpaid is discharged when the plan completes.
What if my income changes in year two?
Plans can be modified after confirmation under 11 U.S.C. § 1329. If a job loss makes any plan impossible, the case can convert to Chapter 7, or in some circumstances the court grants a hardship discharge under § 1328(b). A plan is a living document, not a trap.
Will I ever have to appear in court in Albuquerque?
Almost never. The 341 meeting and most Chapter 13 hearings in the District of New Mexico are held by phone or video, and we appear with you.
Three to five years of protection beats twenty years of minimum payments.
If you have income and something worth saving, Chapter 13 was written for you. Free consultation with an attorney-CPA, and we price both chapters side by side before you decide.