Find Out if You Qualify for Filing Chapter 13 Bankruptcy
Chapter 13 is a good option for high wage earners and others with regular incomes who wish to keep major assets like paid-off homes and cars, and it might be the only option to retain a home or car if you’re behind on the payments.
Not everyone is eligible for Chapter 13 bankruptcy. This page covers the eligibility requirements for this complex chapter of the Bankruptcy Code.
How to Qualify for Chapter 13 Bankruptcy
The major benefit of this type of bankruptcy is that the debtor is allowed to repay some debt over the course of a three- to five-year repayment plan. Not all types of debt qualify for this plan, and you must submit forms to prove the following:
- Your debt is within the prescribed limitations.
- You have filed all your required local, city, state and federal tax returns.
- You must receive adequate income to cover the monthly plan payment.
You Must Receive Sufficient Income
In the case of Chapter 13, you must show you receive sufficient “disposable” income (your income after normal, reasonable household expenses and any secured debts) to meet your repayment plan amount. Certain debt must be paid in full through the plan, while some unsecured debt may be repaid partially or not at all.
Following is a list of some of the sources from which you may fund a Chapter 13 repayment plan:
- Salary, or regular wages
- Seasonal work wages
- Sales commissions
- Self-employment income
- Social Security benefit payments
- Pension payments
- Workers’ Compensation benefits
- Disability benefits
- Welfare payments
- Domestic support (i.e. child support or alimony)
- Rents or royalties
- Funds from selling property
- Regular contributions to your household from your family friends or roommates
If you are married, it’s possible to file a Chapter 13 bankruptcy even if your income is not directly yours. An unemployed spouse can file in a joint case with a working spouse. A non-working spouse can use money from a working spouse as a source of income, but file alone.
Why File for Chapter 13 Bankruptcy?
A Chapter 7 bankruptcy is simpler to file, and wipes out all eligible debt without having to repay creditors. Not everyone can qualify, however. Following is a list of common reasons why you might file a Chapter 13 bankruptcy instead of a Chapter 7.
- Income - If your income exceeds the maximum Chapter 7 “means test” income is eligible to receive a Chapter 7 discharge to eliminate qualifying debt.
- Behind on Payments for Secured Debt – If you own a home and are behind on the payments, you can prevent foreclosure and repay the arrearage on the loan through the Chapter 13 repayment plan. You also can prevent a vehicle repossession (if you’re behind on payments) with the same strategy.
- Wage Garnishment – A debtor may prevent a wage garnishment from a creditor judgment, an overdue tax bill or other non-dischargeable debt
- Nonexempt Property – Certain types of nonexempt property may be sold in a Chapter 7 bankruptcy. Any nonexempt portion of the value of the property must be paid through the Chapter 13 repayment plan.
Total Debt Must Not Exceed Prescribed Limits
If your secured and unsecured debt exceeds a certain amount, you won’t qualify for Chapter 13 bankruptcy. If your secured debts (mortgages and liens) or your unsecured debts exceed the current limits, Chapter 13 may not be available to you.
A secured debt is a loan, typically a mortgage or car loan, that uses a piece of property as collateral to ensure repayment of the loan. A debt can also be secured if a creditor (like the IRS) has filed a lien against your property.
Most debts are unsecured, including medical and legal bills, overdue utility bills, department store charges, personal loans, and credit card debt. In this type of debt, the creditor isn’t allowed to recover any particular piece of property.
How to File Chapter 13 Bankruptcy
The process of filing for Chapter 13 requires the debtor to disclose all aspects of his or her financial condition, including:
- Income and expenses
- Previous transactions
Debtors have 14 days after filing a Chapter 13 petition to submit the repayment plan paperwork to the court and creditors.
This article is intended to provide an overview of the bankruptcy process. Filing for bankruptcy is complicated and we recommend you contact us for a free consultation to discuss your situation.
Schedule your free consultation with David Bhaerman today to see if Chapter 7 or Chapter 13 bankruptcy can help you. Call 614-834-7110 or use the appointment request form on this page.