Chapter 13 bankruptcy, often referred to as a “wage earner’s plan” or “reorganization bankruptcy,” allows individuals with regular income to restructure their debts and create a repayment plan to pay off some or all of their debts over three to five years.
This form of bankruptcy can be a viable option for those who wish to protect their assets and reorganize their financial situation.
In this article, we’ll discuss the key qualifications and requirements needed to file for Chapter 13 bankruptcy.
One of the primary qualifications for Chapter 13 bankruptcy is having a steady and reliable source of income. This can include wages, self-employment income, Social Security benefits, pension payments, and other regular sources.
The income must be sufficient to cover your living expenses and fund your proposed repayment plan.
Chapter 13 bankruptcy imposes specific debt limits, which are periodically adjusted for inflation.
As of September 2021, to qualify for Chapter 13 bankruptcy, your unsecured debts must not exceed $419,275, and your secured debts must not exceed $1,257,850. These figures are subject to change, so it’s important to verify the current limits before filing.
Before you can pass qualifications and file for Chapter 13 bankruptcy, you must provide proof that you have filed all required federal and state income tax returns for the past four years.
This requirement ensures that your tax obligations are accounted for in your repayment plan.
Similar to Chapter 7 bankruptcy, you are required to complete a credit counseling course from an agency approved by the U.S. Trustee’s office within 180 days before filing for Chapter 13 bankruptcy.
The credit counseling course is designed to help you evaluate your financial situation, consider alternatives to bankruptcy, and develop a budget plan.
Your eligibility for Chapter 13 bankruptcy may be affected by any prior bankruptcy cases. Specifically, you are not eligible for Chapter 13 if:
a. You received a bankruptcy discharge in a prior Chapter 7 case within the past four years.
b. You received a bankruptcy discharge in a prior Chapter 13 case within the past two years.
To qualify for Chapter 13 bankruptcy, you must propose a feasible repayment plan that meets the required criteria. This plan should allocate your disposable income toward repaying your debts over a three to five-year period.
The repayment plan must meet the following conditions:
a. Provide for the payment of all priority debts in full, such as back taxes and child support.
b. Ensure that unsecured creditors receive at least as much as they would have received under a Chapter 7 liquidation.
c. Allocate all of your projected disposable income toward the plan for the duration of the repayment period.
d. Be approved by the bankruptcy court.
Qualifications for Chapter 13 bankruptcy require a regular income, adherence to debt limits, filing of income tax returns, completion of credit counseling, no recent bankruptcy discharge, and a feasible repayment plan.
It’s important to consult with a bankruptcy attorney to evaluate your eligibility and navigate the complex process of filing for Chapter 13 bankruptcy.
An experienced attorney can provide guidance on crafting a repayment plan that meets the necessary requirements and maximizes the benefits of this debt relief option.
It’s important to hire an experienced bankruptcy attorney as one of the steps to take when you’re facing bankruptcy and you need solid guidance and representation.
This is because there are many different types of bankruptcy. Only an experienced lawyer will know which one would work best for your specific situation.
It might seem like it makes sense to do this yourself. But most people don’t have the time or patience to understand all of the intricate details involved in bankruptcy.
That means they make mistakes by not choosing the right type, or by not filling out paperwork correctly. Both things could lead to delays and ultimately hurt your chances of getting any debt relief at all.
This is not a journey to take lightly, but it is also not one to take alone. If you need to file for bankruptcy, reach out to us today to start your journey with us.
If you want to learn more about the options you have and the steps to take, call us for a free consultation.
Parker and DuFresne