Chapter 13 Eligibility

The courts use specific tests to see whether a debtor meets Chapter 13 eligibility standards. Only debtors who meet the eligibility requirements may file for bankruptcy under the this chapter of the bankruptcy code.

What is the debtor’s income?

The biggest test of determining Chapter 13 eligibility is the “Wage Earner’s Test.” Under this test, the court checks whether the debtor currently earns a regular wage and can continue to do so in the future. This doesn’t mean that the debtor must earn the same amount each month —however, the debtor must have a regular source of income that pays on a weekly, monthly, quarterly, seasonal, or annual basis. The types of income which may qualify under the test include:

  • Regular wages or income from self-employment.
  • Social Security benefits.
  • Worker’s Compensation benefits.
  • Pension payments.
  • Welfare and other public assistance payments.
  • Child support or alimony payments.

Disposable Income

The court will define “disposable income” as the money left over after paying for necessities such as housing, food, transportation, clothing, utilities, child support, and spousal support payments. The court must feel satisfied that the debtor will still have money left over to pay Chapter 13 obligations on a monthly basis for a period of three to five years.

The amount that the debtor must pay to the court varies according to the amounts and types of debts owed by the debtor. Some debts, such as IRS debts and court costs, must be paid first. Some courts will require that the debtor pay 100 percent of what he or she owes, while others may allow the debtor to repay somewhat less than the entire amount. In order to know for sure how much the court will require in payments, it may be helpful to contact an experienced bankruptcy attorney as soon as possible.

A debtor must be able to show adequate amounts of disposable income. The bankruptcy court will want to see a monthly budget that outlines the debtor’s income and regular expenditures. This is not the time to include fun expenditures such as pedicures or trips to the beach. If the court thinks that the debtor’s proposed budget includes too many luxury items, the court may reject the budget.

Affordable Debts

Regardless of the debtor’s income, bankruptcy laws set some financial tipping points above which the debtor will not qualify for Chapter 13 and must file for Chapter 7 liquidation instead. For example, if the debtor owes secured debts over $922,975.00, he or she will not be able to file under Chapter 13. Similarly, unsecured debts over $307,675 prevent the debtor from filing for Chapter 13 bankruptcy. Most debts, such as credit card and medical bills, are unsecured debts.
In order to meet Chapter 13 eligibility criteria, a debtor must meet certain financial requirements. An individual may need to consult an experienced bankruptcy attorney who can help with the legal strategy and filing for bankruptcy.