Qualifying for Chapter 13
Understanding your options when filing bankruptcy is extremely important. As you may or may not know, there is Chapter 7 and Chapter 13. Chapter 13 offers advantages over Chapter 7. In this blog, we are going to focus on Chapter 13 and how you qualify.
You can file a Chapter 13 case if you meet the following requirements:
- The amount of your debts can’t exceed the legal debt limits
- You are an “an individual with regular income”
What are Debt Limits?
When you file for Chapter 7 bankruptcy, there is no limit to the amount of debt you can have. However, under Chapter 13, there are maximum amounts you can have for secured and unsecured debts.
Back in the late 1970’s, debt limits were created to restrict Chapter 13 since it was newly created and a more streamlined option to what was available at the time. If you have very large amounts of debt, Chapter 11 is an option.
Here are the original debt limits:
- $350,000 of secured debts
- $100,000 of unsecured debts
Around the middle of the 1990’s, these limits where changed:
- $750,000 of secured debts
- $250,000 of unsecured debts
Automatic inflation adjustments are made every 3 years after.
Here’s the most recent adjustment that applies to cases filed after April 1, 2013:
- $1,149,525 of secured debts
- $383,175 of unsecured debts.
Whether you file your Chapter 13 case as an individual or a married couple, these adjustments apply. These limits WILL NOT BE DOUBLED if you file as a married couple. If you reach either of these limits, you will not qualify for Chapter 13.
Understandably, these limits sound pretty high and most people that want to file Chapter 13 have no trouble staying under these limits. However, they can cause problems such as in the example of a serious medical emergency. For instance, if the medical emergency or condition is uninsured or perhaps exceeds insurance coverage, you can quickly exceed these amounts.
Individual with Regular Income
What does this mean?
- You can only file a Chapter 13 case if you are an individual. This only includes human beings and excludes corporations or partnerships.
- An “individual with regular income” is defined as one person “whose income is sufficiently stable and regular to enable such individual to make payments under a plan under Chapter 13.”
If you don’t find this helpful, don’t worry! What is considered “stable and regular’? How will a bankruptcy judge determine this at the beginning of a case? Because this code is so ambiguous, the bankruptcy judge has a freedom when it comes to how they determine this qualification. Most judges will be flexible at the beginning of the case, in order to allow the debtors a chance to make the plan payments. Therefore, they prove that you income is “stable and regular.” However, if your income has been inconsistent, you might need to persuade the judge that your income is actually steady enough to qualify. A helpful bankruptcy attorney will help you present your circumstances so that you can qualify for Chapter 13 bankruptcy.