Who Can Declare Chapter 13 Bankruptcy? Find Out If You Qualify
Chapter 13 bankruptcy, commonly known as the “wage earners plan,” offers individuals with a regular income the opportunity to create a repayment plan, for all or some of their debts. Unlike Chapter 7 bankruptcy, which typically requires selling assets to settle debts, Chapter 13 lets debtors hold on to their possessions and pay back what they owe through a structured repayment plan.
Knowing whether you qualify for declaring bankruptcy Chapter 13 is essential before deciding to pursue this path. This piece aims to provide insight into what Chapter 13 bankruptcy involves, who can declare bankruptcy Chapter 13 and advantages and disadvantages associated with this form of bankruptcy.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy outlined in the Bankruptcy Code, allows individuals to merge their debts and create repayment timeline, stretching over three to five years. This bankruptcy option is designed for those with a stable income, who can commit to paying off a segment or all of their debts over time.
An advantage of filing for Chapter 13 bankruptcy is that it allows debtors to hold on to their possessions like their home, car, and other assets – As long as they adhere to the repayment plan approved by the court.
Key Features of Chapter 13 Bankruptcy:
- Repayment Plan: Spanning three to five years, based on the debtor’s income.
- Property Retention: Debtors can keep their home, car, and other significant assets.
- Debt Reorganization: Allows for the restructuring of debts into manageable payments.
- Court Approval: The repayment plan must be reviewed and approved by the bankruptcy court.
- Trustee Oversight: A trustee is appointed to collect payments and distribute them to creditors.
Chapter 13 works differently from Chapter 7 bankruptcy, wherein the debtors unexempted assets are sold to repay creditors. In Chapter 13, debtors present a plan that factors in their leftover income that can be used for repaying creditors over time. This proposed plan needs to get sanctioned by the bankruptcy court and is managed by a trustee who accepts payments and distributes them to creditors.
Unlike Chapter 7 which disposes of debts sooner, declaring bankruptcy Chapter 13 provides a solution that enables the preservation of assets and a well organized repayment schedule spanning multiple years. This aspect makes Chapter 13 an appealing choice for individuals with an income who wish to protect their assets while effectively addressing their debt burden.
Eligibility Requirements for Chapter 13 Bankruptcy
To qualify for Chapter 13 bankruptcy, individuals must meet specific eligibility criteria. These requirements ensure that only those who can realistically benefit from a repayment plan are allowed to file under this chapter. Understanding who can declare Chapter 13 bankruptcy is critical to determining if this debt relief option suits your circumstances.
Regular Income
Having a steady source of income is a key factor for declaring bankruptcy chapter 13. This could be through wages from your job, self employment earnings, social security benefits, pensions or other forms of consistent income.
The reliability of this income is essential, as it forms the basis of the repayment schedule, which requires debtors to make scheduled payments to the trustee throughout the plan. Who can declare bankruptcy Chapter 13? Individuals without a stable income may face difficulties in fulfilling the responsibilities of a Chapter 13 repayment plan.
Debt Limits
Chapter 13 bankruptcy regularly sets limits that individuals must adhere to. Until March 31, 2025, you can’t have more than $1,395,875 in secured debts and $465,275 in unsecured debts. These limits are adjusted regularly, so it’s essential to stay updated.
Secured debts are backed by assets such as a home or a vehicle while unsecured debts include things like credit card balances, medical bills, and personal loans. If your debt exceeds these limits you may not qualify for Chapter 13 and may need to consider other debt relief options.
Prior Bankruptcy Discharges
Depending on the circumstances, past bankruptcy filings can impact your eligibility to declaring bankruptcy Chapter 13. If within the last six months, your bankruptcy petition was dismissed due to:
- Failure to appear in court or
- Failure to comply with court orders or
- Opting for dismissal when creditors requested court intervention
You may be barred from filing for Chapter 13. Before filing for Chapter 13, individuals are required to undergo credit counseling from a certified agency within 180 days.
Credit Counseling
You’ll need to take a credit counseling course from a court-approved agency before filing for Chapter 13 bankruptcy. The goal here is to help debtors grasp their financial circumstances and consider options to bankruptcy.
In certain situations, the agency may create a debt management plan which must be submitted to the court if the debtor moves forward with Chapter 13. There are cases where exceptions apply such as during emergencies or when there are limited approved agencies available for counseling services, as determined by the U.S. trustee.
The Chapter 13 Bankruptcy Process
Filing for Chapter 13 bankruptcy involves several steps and the preparation of detailed financial documentation.
Filing the Petition
When someone is declaring bankruptcy Chapter 13, they kick off the process by requesting court assistance in their local area. This request involves submitting documents which include:
- Lists of your financial details and what you owe
- Your earnings and spending habits
- Contracts agreements
- Overall view of your money matters
On top of that, you must prove that you attended credit counseling and disclose any debt repayment plans put forth during these sessions. As for the fees, there is a filing fee of $313 and an administrative fee of $78. You should plan to pay these fees when filing your case.
The Repayment Plan
In declaring bankruptcy Chapter 13, the plan details how the person owing money will pay off their debts. This plan needs approval from the court and generally spans from three to five years. The length is based on whether the person’s monthly income is above or below the median income in your state. If the income falls below the median, the plan typically lasts for three years. Unless the court decides to extend it. If the income is above this number, the plan usually extends to five years.
As part of the plan, the person must reveal their income, which refers to the money they have after covering living expenses. This amount is allocated for making regular payments to the trustee. Who then distributes it among the creditors. The plan might also involve modifying loans and lengthening the repayment period for debts.
Role of the Trustee
The court-appointed trustee plays an absolutely crucial role in the Chapter 13 process. When the case is filed, an unbiased trustee gets assigned to oversee things. Some of the trustee’s duties involve:
- Assessing the debtor’s proposed repayment plan
- Managing payments from the debtor
- Distributing these payments to creditors
Additionally the trustee keeps an eye on the debtor’s adherence to the plan and has the right to raise objections if the plan is unworkable or violates bankruptcy regulations.
Special Considerations
Declaring bankruptcy Chapter 13, takes into account the circumstances of self-employed individuals, business owners, and filers.
- Self-Employed Individuals and Business Owners: They may qualify for Chapter 13, as long as their debts meet the criteria. However, they’re required to provide information on their personal and business finances.
- Joint Filers: When married couples file bankruptcy together, it can help simplify the proceedings and reduce costs, as only one filing fee is charged. Both partners need to meet the requirements, and their total income and debts are assessed for the repayment schedule.
Contact The Attorney Debt Fighters
The Attorney Debt Fighters are ready to help you navigate the complexities of the Chapter 13 bankruptcy process, understand who can declare Chapter 13 bankruptcy, and guide you through declaring bankruptcy Chapter 13. Our team of Florida bankruptcy attorneys are here to assist you in understanding bankruptcy laws, crafting a feasible repayment plan and protecting your rights. Contact us today for your free consultation with a debt relief attorney you can trust.
