How Do You Qualify for Chapter 13 Bankruptcy?

What are the Requirements for Qualifying for Chapter 13 Bankruptcy?

In order to file for Chapter 13 bankruptcy, the debtor must qualify. In order to qualify for Chapter 13, the major qualifying factor is the amount of secured and unsecured debts. Each year, the U.S. Congress sets the limits for secured and unsecured debts for each County and State. The debtor may not exceed these limits in either category. There are other requirements as well.

For example, using 2012 tables for Orange County, a debtor owing $900k in secured debts, and $250K in unsecured debts would qualify for Chapter 13 as long as the other requirements are met. A debtor owing $1.5 million on a mortgage, or $500k in personal debt, would not qualify for Chapter 13.

Who Can File Chapter 13?

Only individuals may file Chapter 13. Partnerships, corporations and other business entities may not file Chapter 13. However, an individual may not file under Chapter 13, or any other chapter, if during the preceding 180 days a prior bankruptcy case was dismissed due to the debtor's willfull failure to appear before the court or comply with orders of the court, or if the debtor voluntarily dismissed a previous case after creditors sought relief from the bankruptcy court to recover property.

What Are The Categories of Debt?

The types of debts that have limits to qualify for Chapter 13 are "Secured" debts and "Unsecured" debts. Secured debts are those financial obligations which property has been provided as collateral for the loan. These typically include cars, boats, houses and other loans where the lender can repossess some property if the loan is not paid. Unsecured debts are those debts for which no property has been provided as collateral. These debts typically include credit cards, medical expenses, personal loans, cellular phone bills, unpaid rent, most taxes, and store credit cards.

What Are the Limits of Debt in Order to Qualify for Chapter 13?

Remember, the limits change every year so do not rely on the numbers here as Congress can decide at any time to revise the limits, both up and down. In 2012, the limit for secured debts was $1,081,400 and the limit for unsecured debts was $360,475. If your debts in either category exceed these limits, contact an experienced bankruptcy attorney to discuss strategies to address this situation. DO NOT transfer, sell, or give away any property without first discussing it with an experienced bankruptcy attorney. The laws regarding transferring assets are very harsh when violated. Egregious violations can result in jail time.

What If You Don't Qualify for Chapter 13?

If the debtor's amount of debts in any category exceed the limits set by Congress, then the debtor must look to other bankruptcy chapters for relief or devise a plan that will allow the debtor to eventually qualify for Chapter 13. Most debtors that are individuals will consider Chapter 7 if Chapter 13 is not available to them. Chapter 7's requirements are based on the amount of the debtor's annualized gross monthly income averaged over the 6 months prior to filing bankruptcy and is explained here. (If you were confused by that last sentence, you are not alone. Bankruptcy law has many strange ways of doing things, and calculating someone's monthly income is one of them.)

Most individuals are able to find a bankruptcy chapter that will work for them. Sometimes, the attorney and the client will work together and devise a plan that may take a few months for the individual to complete but that allows the individual to eventually file bankruptcy and get a fresh start.

If You Have More Questions

Please contact us if you have more questions or are ready to move forward and start the process of becoming debt-free. Remember, we are here to help you resolve your debt problems, so call us now!

(949) 954-7568