Chapter 13 bankruptcy can be a lifeline for individuals and families looking to restructure their debts and start anew. However, potential clients often ask us, Can you be denied for a chapter 13 bankruptcy? The answer is yes. The chapter 13 bankruptcy process isn’t straightforward, and courts will reject a chapter 13 bankruptcy filing in some circumstances. Understanding these reasons is critical for those considering this debt-relief option. So read on to learn more about the requirements for chapter 13 bankruptcy.
It’s also important to remember that rejection of a chapter 13 bankruptcy petition is not always final. In most situations, there are solutions for a denied chapter 13 bankruptcy. Regardless of whether you are considering filing for chapter 13 bankruptcy or are looking for help after a court denied your petition, it’s best to contact a qualified bankruptcy attorney.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a type of bankruptcy that is available to most Americans with a regular income. Chapter 13 allows individuals with a consistent income to repay some or all of their debt over a certain time period. The chapter 13 process begins when a debtor proposes a repayment plan.
Under federal law, the repayment plan must provide for the payment of all debts over a period of three to five years. The debtor’s monthly income largely determines the repayment plan. If the debtor’s current monthly income is less than Maryland’s median income, then they will usually have three years to repay their debts. However, a court may approve a longer repayment period in some instances. If the debtor’s current monthly income is greater than Maryland’s median income, the repayment period is five years.
Advantages and Disadvantages of Chapter 13 Bankruptcy
As with anything else, chapter 13 bankruptcy has advantages and disadvantages. One major advantage of chapter 13 is that it halts foreclosure proceedings so that you can save your home. In addition, chapter 13 also allows you to rehabilitate past delinquent mortgage payments.
Furthermore, chapter 13 offers you the ability to extend debt payments, reduce the amounts of payments, or give up high-interest property to your creditors. This flexibility can offer you financial relief and a more manageable payment plan. Yet another benefit of chapter 13 is that it provides protection to co-signers on your debts. Lastly, chapter 13 introduces a trustee between you and your creditors. That means you won’t have to have any direct contact with them, giving you some peace of mind.
The primary disadvantage of chapter 13 is its long-term, negative impact on your credit score. The bankruptcy will show on your credit report for seven years, making it very difficult to obtain new loans. In addition, courts exert significant control over your spending habits. So, if you’re in the habit of purchasing any luxury products or services, the court may restrict your spending ability. Finally, chapter 13 does not provide unconditional protection for your assets. If you fail to make your repayment plan payments, the bankruptcy trustee will file a motion to dismiss your case.
Can You Be Denied for a Chapter 13 Bankruptcy?
Contrary to what some may believe, bankruptcy protection is not an automatic right. Therefore, courts can reject chapter 13 petitions. There are several reasons for a court to reject a chapter 13. Let’s unpack these one by one.
Plan Payment Issues
There are three primary problems that can cause your case to be denied for lack of proper funding. One is the failure to make payments. The second is the disposable income test. The other is the liquidation analysis test.
When your case is filed you have to start making plan payments to the Trustee. If you aren’t making payments, your case will get dismissed.
To meet the disposable income test the Trustee payment must equal all of your disposable income after your reasonable expenses. The liquidation test is that you have to make sure that what you pay is enough to protect any non exempt assets. This is sometimes referred to as the Chapter 7 test. The Trustee is required to make sure the creditors are going to receive at least what they would receive if your nonexempt assets were liquidated in a Chapter 7 bankruptcy.
Chapter 13 bankruptcy has certain eligibility requirements. These are tangible and objective qualifications that you must definitively satisfy if you want to qualify for chapter 13. Failure to meet any of these requirements may lead to the denial of your filing. These requirements include:
- Income. Unlike chapter 7 bankruptcy, chapter 13 requires the debtor to have a steady income to fund the repayment plan. If the court determines that your income is insufficient to meet your proposed repayment obligations, it can deny your bankruptcy filing.
- Debt limits. Per federal law, there are limits to the amount of debt an individual can have when filing for chapter 13 bankruptcy. As of 2023, an individual’s debts must be less than $2,750,000.
- Prior bankruptcies. If you have had a bankruptcy petition that was dismissed within the previous 180 days due to willful failure to appear in court or comply with court orders, then the court will probably deny your petition. Similarly, you are not eligible for chapter 13 if you voluntarily dismissed your previous case following a creditor’s motion for relief.
Keep in mind that these requirements are strict. That means courts have little or no discretion to help you if you fail to meet these requirements.
There are also several procedural requirements in chapter 13 proceedings. Failing to meet these to the court’s satisfaction can lead to a denial. Examples of procedural-related reasons for dismissal include:
- Failing to file required documents. The court requires a number of documents for a chapter 13 bankruptcy filing, including schedules of assets and liabilities, a list of your current income and expenditures, and a statement of financial affairs. If you fail to file these, the court will likely dismiss your petition.
- Filing incomplete documents. Similarly, providing incomplete or incorrect information can lead to a denial. This includes not listing all creditors, assets, income, or expenses, or not proposing a feasible repayment plan.
- Failing to attend mandatory meetings. Bankruptcy proceedings require you to attend certain meetings, including meetings with creditors and court hearings. Failing to attend these meetings can quickly end your bankruptcy hopes.
To ensure you meet all eligibility and procedural requirements, you should seek the assistance of an experienced bankruptcy attorney.
Let Southern Maryland Law Fight for Your Chapter 13 Bankruptcy Petition
Can a chapter 13 bankruptcy claim be denied? Now that you know they can, you understand the importance of obtaining legal assistance. While bankruptcy can provide significant relief for those overwhelmed with debt, it’s a complicated legal process. Having a seasoned bankruptcy attorney from Southern Maryland Law on your side can make the process smoother and increase your chances of a successful outcome. Our attorneys have helped thousands of individuals navigate the intricacies of bankruptcy law and can provide the guidance and representation you need.
We’re not just another law firm. We’re woven into the fabric of our community thanks to our tireless efforts for over fifty years. At Southern Maryland Law, you’re not a file in a cabinet. You’re a face, a story, and an individual we’re committed to aiding. We believe in being personal, relatable, and understanding. We recognize that this is about you, your situation, and your trials. And we’re here to find those solutions and answers for whatever predicament you find yourself in.
Debt need not be a shackle. It’s time to break free. Let’s walk this path together to financial freedom. Reach out today.