Do You Qualify for Chapter 13 Bankruptcy?

Bankruptcy options can be very confusing for debtors. The first question that most people who are dealing with overwhelming debt must address is eligibility for bankruptcy.

If you are drowning in debt, with late fees, interest and bills piling up, bankruptcy can be a lifesaver. Find out if you can qualify for Chapter 13 bankruptcy and what factors could keep you from filing.

Benefits of Filing for Chapter 13 Bankruptcy

Chapter 13 is a recommendable solution for many because it provides a workable three- to five-year payment plan with reduced or no interest and no penalties. This is extremely helpful for someone struggling to pay their bill because interest and late fees add up quickly.

By filing for bankruptcy, you also may end up paying only a portion of the debt back to creditors. As soon as you file, the court will automatically put a temporary stop on bank account attachments, wage garnishments, car repossessions and home foreclosures. You can keep most, if not all of your assets, while working to pay off a lower amount of debt. This provides debtors with relief from collectors and precious time to get back on track.

But what are the factors that determine if your application for bankruptcy will be approved?

Requirements for Chapter 13 Bankruptcy

Anyone wishing to file for Chapter 13, must first show that they meet the qualification requirements. These include being up-to-date on filing taxes (it’s OK to owe taxes), having a debt amount lower than the limit, and having a regular income.

Are You Filing as an Individual?

Only individuals can file for this type of bankruptcy, not companies.

Business owners can, however, file for Chapter 13 as an individual. The bankruptcy application will include any debt incurred by the company for which you are personally liable.

Chapter 11 bankruptcy is recommended for anyone filing under the name of a business.

Are You Up-to-Date on Income Tax Filings?

In order to qualify for Chapter 13 bankruptcy, you must show the court that you have filed both federal and state income tax returns for the past four years. This refers to the tax years before that date that you apply for bankruptcy. In some situations, the judge may allow you extra time to catch up with tax filings. Your lawyer should be able to advise you about requesting a delay in the qualification decision.

Will Your Income Cover the Repayment Plan?

Before allowing you to file for Chapter 13, the bankruptcy court must verify that you can meet the repayment schedule. You will have to prove that your income is sufficient enough to cover both your living expenses and the required debt payments, like the mortgage and car loan. The judge wants to know that you make enough money to meet your repayment promise for secured debt.

Acceptable Income Sources

To qualify for Chapter 13 bankruptcy, you will need to show that you have adequate income from one, or a combination of, the following sources.

  • Wages or Salary,
  • Payment for seasonal work,
  • Income from self-employment,
  • Sale commissions,
  • Pension payments,
  • Unemployment benefits, strike benefits, etc.,
  • Disability or workers’ comp benefits,
  • Social Security benefits,
  • Welfare benefits,
  • Child support,
  • Alimony,
  • Income from rental property,
  • Income from selling property.

For married couples, a spouse who doesn’t work can still file separately for bankruptcy and claim income from the employed spouse as part of his or her income. Similarly, an unemployed person can file jointly with his or her employed spouse.

How Much Debt Do You Owe?

Unfortunately, your application for Chapter 13 will not be approved if you have too much debt. Make sure that your information is recent because the legal limit changes every three years and it is different for secured and unsecured debt.

Secured Debt

This type of debt is backed by other property, meaning that property can be repossessed if the loan is not repaid on time. The most common kinds of secured debt are mortgages and car loans.

As of 2017, the limit for acceptable secured debt for someone requesting Chapter 13 relief is $1,184,200.

Unsecured Debt

Other debt, which is not backed by property in case of default, is called unsecured. This includes personal loans, student loans, medical expenses and other bills, credit cards and charge cards.

In order to qualify for Chapter 13, the debtor must no more than $394,725 of unsecured debt as of the limit set in 2017.

Also read our 8 Recommendations for Surviving Chapter 13 Bankruptcy.

Learn More about Your Options

If you are ready to get back on solid financial ground, it’s time to get informed about the options that are available to you. Call the offices of Amourgis & Associates at (844) 218-2721 to request a consultation and get valuable legal advice.

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