How to Qualify for Chapter 13
When a person does not qualify for Chapter 7, Chapter 13 can be a great second option. Below is a list of qualifications necessary for a Chapter 13.
Must Have Sufficient Income to Qualify for Chapter 13
If you are planning to file a Chapter 13 to take advantage of benefits it provides, you must have sufficient income to make monthly plan payments (see Means Test for more information). For example, some debtors file a Chapter 13 to save their home from foreclosure. If a debtor has $20k in mortgage arrears, then they have to pay at least $20k over the course of the plan. The question debtors should ask is “if I couldn’t afford the mortgage prior to filing bankruptcy, can I afford to make my normal monthly mortgage payments and a Chapter 13 plan payment in bankruptcy?“ Unless the debtor has a new job that pays more, or has new or better source of income, then the debtor most likely will not be able to afford the Chapter 13 Plan Payment.
Plan Payment Must be Enough to Pay Required Debts
These are other debts that must always be 100% paid during the life of the plan.
Priority debts include child support, alimony, or non dischargeable taxes.
Although the secured debt does not have to be 100% paid, the debtor must stay current. Additionally, as explained above, any amounts due prior to filing the bankruptcy case must be paid in full as part of the plan.
A Business is Not Qualified for Chapter 13
A business itself, cannot file for Chapter 13. Only individuals can file for Chapter 13. Businesses have the option to file for Chapter 11 to reorganize their debts.
Your Debt Cannot be Too High to Qualify for Chapter 13
There is a Chapter 13 debt limit. The debt limit for unsecured debt is in the neighborhood of $365k. The debt limit for secured debt is $1.1 million. There is no exact numbers because the limits often change. If your debt is over the limit, then you cannot file Chapter 13.
You Must be Current on Tax Return Filings to Qualify for Chapter 13
In addition to the above qualifications, you must be current on your tax return filings. If you are not required to file taxes, then you are considered current.
Above is a list of some qualifications for Chapter 13 bankruptcy cases. It is always recommended that you seek a Chapter 13 bankruptcy attorney before making any decisions. Chapter 13s are extremely complex. There are studies stating that less than 1 percent of Chapter 13 cases even make it through confirmation of the plan payment when the debtor does not have an attorney.