How Much Do You Have to Be in Debt to File Chapter 13? Explained (2024)

There is no minimum amount of debt you must be in to file for Chapter 13 bankruptcy. However, your combined secured and unsecured debt cannot exceed $2,750,000 on your filing date, per the United States Courts. Chapter 13 allows you to create a plan to repay your debt given that you make a consistent income.

You can find out if filing Chapter 13 bankruptcy is the right step for you by working with one of our bankruptcy lawyers. We can explain how you can begin to repay your debt and come up with a plan that benefits you.

Understanding the Eligibility Requirements for Chapter 13 Bankruptcy

Chapter 13 bankruptcy is known as the “wage earner’s plan.” Unlike Chapter 7, which completely forgives qualifying debt, Chapter 13 permits debtors to retain assets by restructuring their debt load and making manageable monthly payments for a period of 3 to 5 years.

There are specific eligibility requirements to qualify for filing under Chapter 13, including:

• You have a job or other regular source of income
• You have enough income to cover the monthly payments you owe
• You have filed all required tax returns
• You are within the debt amount requirements

Only married couples and individuals can file for Chapter 13 restructuring. Businesses desiring similar debt resolution might file under Chapter 11. A Chapter 13 filing must establish the following facts:

• You completed an approved credit counseling program
• Your personal income tax filings are current over the past four years
• Your submitted plan repays all secured debts satisfactorily according to the bankruptcy laws
• Your plan includes some repayment to unsecured debts
• The remaining income after living expenses is sufficient to cover plan payments

With the counsel of a bankruptcy attorney, you can establish your eligibility for Chapter 13 restructuring and present your repayment plan to the court.

The Benefits of Chapter 13 Bankruptcy

A significant benefit of Chapter 13 bankruptcy is keeping your assets while paying down your debt. Some other benefits include the following:

• Delinquent debts are paid down over time, with the remainder forgiven at the end of the payment plan
• Secured debts can be restructured and extended, possibly with a lower interest rate, thus lowering the monthly payment
• You can resolve tax debts through repayment of the taxes in the Chapter 13 payment plan
• You can delay burdensome student loan payment obligations
• You can keep the property you owe money on
• You could open new lines of credit within a few years of declaring bankruptcy
• Declaring Chapter 13 sooner rather than later can help you begin rebuilding your credit sooner

While Chapter 13 bankruptcy remains on your credit report and will affect your financial standing, it carries advantages that ensure your ability to meet living expenses while working to pay down your debt.

Exploring the Disadvantages of Chapter 13 Bankruptcy

As with all things, there are also disadvantages to filing under Chapter 13. Some of the negative aspects include:

• Repayment plans may extend for up to five years (60 months)
• Debts are paid out of “disposable income”
• Chapter 13 bankruptcy remains on your credit report for seven years
• Your current credit card accounts will be closed
• You may not qualify for a mortgage for a period of time after filing
• Filing under Chapter 13 may delay your ability to later file under Chapter 7
• Chapter 13 doesn’t remove child support or alimony obligations

Bankruptcy under Chapter 13 may not eliminate all your debt, but it should bring your payments into a more manageable realm.

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What You Need to File a Chapter 13 Bankruptcy

When considering a Chapter 13 bankruptcy, it can be helpful to begin organizing everything you need to complete the process. The documentation you will need includes the following:

• List of your assets and liabilities
• Wage and other income statements showing your monthly gross and net income
• List of current bills and expenses
• Current leases, contracts, or mortgages
• Current financial statements
• Record of credit counseling completion
• Record of income from employers for the past six months
• Federal or state tuition accounts
• Two or more years of past tax filings

Spouses filing together must proceed with individual records for wages and any asset held outside the marriage.

Differences Between Chapter 7 and Chapter 13 Bankruptcy

The options for people filing bankruptcy as individuals are Chapter 7 and Chapter 13. There are differences between the two Chapters.

Chapter 7 is a liquidation process, although most people filing Chapter 7 are able to exempt or protect all of their assets including their primary residence and vehicle. If someone owns higher value assets and cannot fully exempt them, these non-exempt assets will likely have to be sold to provide some repayment to your creditors. There is no repayment plan in Chapter 7, as any remaining debts are discharged..

Chapter 13 is a debt restructuring process, meaning that you make payments on your debts over 36 to 60 months. Creditors are paid in order of precedence, with secured debts paid down before unsecured debts. Many people in Chapter 13 still have some percentage of their unsecured debt forgiven, but the amount discharged varies from case to case.

Credit Counseling Requirements Under Chapter 13

One of the requirements under Chapter 13 is that you must obtain certification from an approved credit counseling course. The training aims to teach you about credit, maintaining good credit, and avoiding the pitfalls leading to bankruptcy.

Consider a Chapter 13 Bankruptcy Attorney from Farmer & Morris Law, PLLC

If you are at a point where your debts seem overwhelming, discuss the situation with a bankruptcy attorney from Farmer & Morris Law, PLLC. Our bankruptcy team is compassionate and understanding. We know bankruptcy laws and can review your case to help you determine which Chapter would be best. Contact our team to get started on rebuilding your future today.