Chapter 13 — sometimes called "wage-earner bankruptcy" or "reorganization" — lets you keep your assets (including a house with a mortgage you've fallen behind on) while repaying creditors over a 3- or 5-year court-supervised plan. After the plan completes, remaining unsecured debts are discharged.
Plan length is controlled by median income
New Mexico's median household income (4-person family, 2024 figure: about $94,000) is the threshold:
- Below median: 3-year plan minimum
- At or above median: 5-year plan required
Median figures update every 6 months — confirm the current number with your bankruptcy attorney.
Who Chapter 13 is for
Chapter 13 is the right tool when:
- You're behind on a mortgage and want to keep the house — Chapter 13 lets you cure arrears over 3-5 years
- You're behind on a car loan — "cramdown" lets you reduce the loan to current car value if the loan is over 910 days old
- You make too much for Chapter 7 — failed the means test
- You have non-dischargeable priority debts (recent taxes, child support arrears) you can pay over time
- You have non-exempt assets you'd lose in Chapter 7
- You filed Chapter 7 recently (8-year wait between Chapter 7 discharges)
- You want to discharge debts that survived a prior Chapter 7 (Chapter 20 — Chapter 7 followed by Chapter 13)
Eligibility limits
- Debt limits — As of 2024, total debt under ~$2.75M (combined secured and unsecured) for cases filed after June 21, 2024 — Congress allowed the higher SBRA limits to sunset partially
- Regular income required — wage earners, self-employed, business owners, retirees with pension/Social Security
- Tax returns filed — must be current on the past 4 years
- Credit counseling — required pre-filing certificate
- No prior dismissal in past 180 days for cause
How the plan works
Your monthly plan payment goes to a Chapter 13 trustee, who distributes to creditors in priority order:
- 1Secured debts being cured (mortgage arrears, car loans)
- 2Trustee fees (typically 5-10% of plan payments)
- 3Priority unsecured (recent taxes, domestic-support arrears)
- 4General unsecured (credit cards, medical, signature loans) — receives whatever's left, often pennies on the dollar
What discharges at the end
After successful completion of the plan:
- Most unsecured debt that wasn't paid in full is discharged
- Some debts survive (student loans, recent taxes, domestic support, criminal restitution, fraud-based debts)
- Secured debt is discharged only if the collateral is surrendered or the loan is fully cured
Discharge is broader than Chapter 7 in some ways — Chapter 13 can discharge certain marital-property debts and certain criminal fines that Chapter 7 cannot.
What can go wrong
Most Chapter 13 cases that fail do so because:
- Debtor stops making plan payments — plan dismissed, creditors come after you again
- Loss of income mid-plan — plan modification possible but limited
- Failure to maintain post-petition payments (mortgage, car, support) — relief from stay granted to creditors
- Failure to file annual income/tax certifications
- New debt incurred without trustee approval
Only about 1/3 of Chapter 13 cases reach discharge — most are dismissed or converted.
Costs
- Filing fee: $313 (federal); installment payment allowed
- Attorney fees: typically $3,500-$6,000 (mostly paid through the plan, not upfront)
- Credit counseling and debtor education: ~$50 each
- Trustee fees: 5-10% of plan payments (paid by the debtor, distributed to creditors)
Chapter 7 vs Chapter 13 quick compare
| | Chapter 7 | Chapter 13 | |---|---|---| | Length | 3-6 months | 3-5 years | | Income requirement | Must pass means test | Must have regular income | | Asset treatment | Non-exempt sold by trustee | Keep all assets | | Mortgage cure | No | Yes | | Frequency | 8-year wait | 2-year wait between discharges | | Co-debtor protection | No | Yes (limited) | | Discharge of fraud-based debt | No | No (similar exception) |
What you should do
Chapter 13 cases require ongoing trustee oversight for years — DIY is rarely realistic. New Mexico bankruptcy attorneys typically charge flat fees that are mostly paid through the plan rather than upfront — making representation far more accessible than it sounds. Most offer free initial consultations to assess whether Chapter 7 or Chapter 13 is the right tool.
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This guide is general information about federal bankruptcy law and New Mexico-specific exemptions as of early 2026 and is not legal advice. Median income thresholds, debt limits, and procedural rules update every 1-3 years. Talk to a licensed New Mexico bankruptcy attorney about your specific situation.