Am I Eligible for Chapter 13 Bankruptcy?

Chapter 13 bankruptcy can provide a valuable solution for individuals struggling with debt. By allowing repayment over three to five years, Chapter 13 bankruptcy provides a way for you to get back on track financially and regain control of your finances. 

When you file for Chapter 13 bankruptcy, you make payments for three to five years under the automatic stay, which stops creditor actions. Wage garnishment, foreclosure, and repossession stop, giving you time to catch up on missed payments and get your finances in order. At the end of your plan, you receive a discharge of eligible debts. 

However, not everyone is eligible for Chapter 13 bankruptcy. The Bankruptcy Code limits Chapter 13 to individuals with a regular income and debts below the legal threshold. 

Our bankruptcy attorneys have helped many individuals navigate the complex process of Chapter 13 bankruptcy. Having the right legal representation can make a significant difference in the outcome of your case and can help you achieve the fresh start you need. This blog will take a closer look at who is eligible for Chapter 13 bankruptcy. 

What Are the Chapter 13 Bankruptcy Eligibility Requirements?

Chapter 13 bankruptcy is often called a “wage earner’s plan.” Thus, to be eligible for Chapter 13, you must meet specific criteria, including the following:

1. You must be an individual, not a corporation or partnership;
2. You must have a regular income and the ability to maintain a repayment plan for three to five years;
3. Your combined total secured and unsecured debts must be less than $2,750,000 (for 2022 to 2024); and
4. You must have filed all required tax returns for the previous four years.

Whether you’re considering filing for Chapter 13 bankruptcy or want to understand the process better, knowing the eligibility requirements can help you make informed decisions about your financial future. 

Chapter 13 vs. Chapter 7 Eligibility

When considering bankruptcy, you may hear about Chapter 13 and Chapter 7, which refer to chapters of the Bankruptcy Code. Both types result in a discharge of outstanding debts for individuals in the United States. To receive a discharge, you must follow each chapter’s different processes.

Chapter 7 Eligibility

A Chapter 7 bankruptcy—also known as a “liquidation” bankruptcy—allows individuals to discharge their unsecured debts, such as credit card debt, medical bills, and personal loans. To be eligible for Chapter 7 bankruptcy, you must pass the means test, which determines your ability to repay your debts based on your income and expenses. Debtors with a high disposable income and significant assets may not be eligible for Chapter 7 bankruptcy. 

Chapter 13 Eligibility

In Chapter 13 bankruptcy—also known as a “reorganization” bankruptcy—debtors can keep most of their assets. At the same time, they repay some or all of their debts over three to five years. After completing the payment plan, the court will discharge any remaining eligible debts. To be eligible for Chapter 13, you need to have a regular income, and your total debt must be below the legal limits. 

Both types of bankruptcy have advantages and disadvantages. The best option depends on your financial situation. A bankruptcy attorney can help you determine the best choice for your circumstances.

Why File Chapter 13

Chapter 13 bankruptcy pauses collections while you pay your debt under a court-mandated plan for three to five years. If you successfully keep up the plan, the court may discharge your remaining eligible debts. Let’s look at some other reasons to file for Chapter 13 bankruptcy. 

• Keep your assets. Debtors may keep their assets, such as their home or car, while they take time to pay debts. In contrast, Chapter 7 bankruptcy requires liquidating of assets that are not protected by the bankruptcy exemptions to repay creditors.  For more information see our post What Are Maryland’s Bankruptcy Exemptions. 
• Avoid foreclosure. For individuals facing foreclosure, Chapter 13 bankruptcy can provide a reprieve. Filing Chapter 13 blocks foreclosure and allows debtors to get back on track with mortgage payments using the plan.
• Repay debts. Chapter 13 bankruptcy allows individuals to repay their debts in a structured and manageable way. The court-approved repayment plan helps ensure that debts are repaid in full or in part over a set period.
• Protect cosigners. If you have cosigned a loan with someone else, filing for Chapter 13 bankruptcy can protect your cosigner from being held responsible for the debt.
• Stop creditor harassment. Once you file for Chapter 13 bankruptcy, an automatic stay goes into effect, which stops creditors from pursuing further collection efforts, including wage garnishment and harassing phone calls. Because you make payments to the trustee, you avoid contact with creditors over the life of the plan. 
• Rebuild credit. After completing a Chapter 13 bankruptcy, individuals can begin to rebuild their credit and work towards a better financial future.  Some people even see their credit score increase while the case is pending.

While Chapter 13 bankruptcy has many benefits, it also has serious consequences. It can impact your credit for seven years after you complete the three-to-five-year repayment process. Also, any additional income you receive during that time, like personal injury settlements or a raise at work, must go toward the plan. Thus, Chapter 13 works best for debtors with stable incomes who are in a temporary financial crisis. Before deciding about bankruptcy, it is essential to consider all options, including credit counseling and debt management.  

Choose Southern Maryland Law for Your Chapter 13 Bankruptcy

An experienced bankruptcy attorney can help you ensure that your Chapter 13 repayment plan meets the court’s requirements and is approved. The attorney can also provide guidance and support throughout the process, including working with creditors and navigating the bankruptcy court system. Only an attorney can answer the question, Am I eligible for Chapter 13 bankruptcy?

At Southern Maryland Law, our attorneys have over 30 years of bankruptcy experience in Charles County, St. Mary’s County, and Prince George’s County. When you hire our legal team, you receive professional, small-town lawyers invested in helping you regain your financial footing. We value our role in the community and are here to support you while you navigate today’s trying times. If you’re having trouble keeping up with your bills, meeting basic living expenses, and providing for your family, Chapter 13 can offer you a chance to reorganize. 

Contact our attorneys to review your eligibility for Chapter 13 bankruptcy. Your initial consultation comes with no obligation, and we offer flat fees for every bankruptcy case.