Chapter 13 bankruptcy is otherwise known as “reorganization bankruptcy” or “wage earner plan.” This is because this consumer bankruptcy type has the debtor take their debts and reorganize them into a manageable three- to five-year repayment plan to pay off outstanding creditors. Due to the repayment plan alone, you must understand that a Chapter 13 bankruptcy filing is not necessarily attainable for every consumer. With that being said, please read on to discover the criteria for a Chapter 13 bankruptcy filing and how a seasoned Louisville, Kentucky Chapter 13 bankruptcy lawyer at Schwartz Bankruptcy Law Center can help determine your eligibility.
What are the eligibility criteria for Chapter 13 bankruptcy?
It cannot be emphasized enough that the Kentucky bankruptcy court will only accept Chapter 13 bankruptcy petitions from debtors that meet specific eligibility criteria. Nonetheless, these requirements read as follows:
- The debtor must earn a regular income in some capacity:
- They earn wages through their employer.
- They earn a commission through their self-employment.
- They earn payments through pensions or Social Security benefits.
- They are married to an individual who earns a regular income.
- The debtor must have secured and unsecured debts totaling below a certain limit:
- They must have secured debt that totals less than $1,395,875.
- They must have unsecured debt that totals less than $465,275.
- The debtor must have filed Kentucky and federal income tax returns for the four years before their bankruptcy filing.
- The debtor must have completed a credit counseling course from an approved location within 180 days of their bankruptcy filing.
- The debtor must not have filed for Chapter 13 bankruptcy in the past two years or Chapter 7 bankruptcy in the past four years.
What happens if I don’t qualify for Chapter 13 bankruptcy?
Missing the mark on just one of the aforementioned eligibility criteria may disqualify you from a Chapter 13 bankruptcy filing. In this case, you may begin exploring a Chapter 7 bankruptcy option.
This consumer bankruptcy type is otherwise known as “liquidation bankruptcy” or “straight bankruptcy.” This is simply because it has a debtor surrender their nonexempt assets to their appointed bankruptcy trustee. From here, the trustee sells these assets and uses the proceeds to pay outstanding creditors. Therefore, no years-long repayment plan is necessary.
Importantly, though, there are also specific requirements for Chapter 7 bankruptcy. Most notably, you must pass the means test, which calculates if your current monthly income is less than the median income for a household of your size in your state. For example, as of 2024 in the state of Kentucky, the debtor must earn less than $7,475 per month.
So if you eventually learn that you qualify for neither Chapter 13 nor Chapter 7 bankruptcy, you may have to consider alternative resolutions. This may be as simple as building a debt management plan for yourself.
There is a lot to consider before pursuing a Chapter 13 bankruptcy filing. To help you make the right considerations, please consult with a competent Louisville, Kentucky consumer bankruptcy lawyer. Our team at Schwartz Bankruptcy Law Center will guide you toward the best decision.
