Facing financial challenges can be overwhelming. For some, Chapter 13 bankruptcy provides a structured path to regain control.
To embark on this journey, it is necessary to grasp the eligibility requirements.
The foundation of Chapter 13 eligibility rests on having a stable income. This ensures the debtor can meet the proposed repayment plan. Those with irregular or insufficient income may find Chapter 7 more suitable.
Secured and unsecured debt limits
Chapter 13 imposes limits on the amount of debt an individual can carry. In 2023, the government required total secured and unsecured debts to be less than $2.75 million These limits act as guardrails, determining who can benefit from the tailored debt restructuring offered by Chapter 13.
Regular income tax filings
Prospective filers must showcase a track record of regularly filing income tax returns. This reflects financial transparency and aids in formulating a feasible repayment plan. It is not just about the income amount but also about the consistency and responsibility demonstrated through tax compliance.
No discharge within two years
To maintain the integrity of the bankruptcy process, individuals are ineligible for Chapter 13 if they received a discharge in a previous case within the last two years. This safeguard prevents misuse of the bankruptcy system and encourages responsible financial behavior.
Adequate disposable income
Chapter 13 requires debtors to have adequate disposable income after covering essential living expenses. This surplus income becomes the foundation for the proposed repayment plan. Calculating disposable income involves deducting necessary expenses from total income, ensuring a reasonable allocation towards debt repayment.
In FY 2023, U.S. courts had 178,214 Chapter 13 filings. While any kind of bankruptcy requires significant consideration, Chapter 13 is a debt restructuring option that many use for a more stable and secure financial future.