How Do I Qualify For Chapter 13 Bankruptcy?
There are a couple requirements to qualify to file a Chapter 13 bankruptcy:
First, you must have “regular monthly income” sufficient to be able to afford to pay your monthly living expenses and be able to pay the monthly Chapter 13 payment.
Second, you must not have been prohibited from filing bankruptcy by order the bankruptcy court for prior bankruptcy misconduct (this is incredibly rare).
Third, your unsecured debts must be less than $419,275 and your secured debt less than $1,257,850. These limits are for noncontingent, liquidated debts (meaning the amount and your liability for your debts has actually been determined).
That is about it for qualifying to file a Chapter 13.
There are a few more requirements that have to be met in order to get a discharge in a Chapter 13, however. First, you can’t have filed a Chapter 13 in the 2 years prior, or a Chapter 7 in the 4 years prior. Second, you must comply with the terms of your Chapter 13 plan, which means you must make your monthly payments to the Trustee, you must take two classes online (one before you file and one after you file), and you must provide certain information and forms to the Trustee and Court during the bankruptcy case.
HOW LONG WILL MY CHAPTER 13 BE?
A Chapter 13 plan can be anywhere between 36 months and 60 months. If your income is above the median income, then your Chapter 13 plan must be 60 months long. When completing your bankruptcy paperwork, your attorney will fill out and review with you the “means test” which is a two-prong analysis of your household income. The first prong of the test compares the last 6 full calendar months of all of your household’s gross income with the median income for your household size in Minnesota.
The median income figures are regularly updated. As of the end of 2019, the current median household incomes for Minnesota are as follows:
Family of 1 – $57,017
Family of 2 – $76,319
Family of 3 – $95,919
Family of 4 – $112,291
Family of 5 – $121,291
Family of 6 – $130,291
The means test counts all of your income received over the 6 months prior to the filing of the bankruptcy case. Pension, child support, unemployment compensation, and worker’s compensation payments or other private disability payments all count as income. It also includes any income received to help pay for living expenses. This is typically a significant other or renter in the home. About the only sources of income that do not count in the means test are Social Security Income, Social Security Disability Income, and VA Disability Income.
If you are over the median income, your Chapter 13 plan needs to be a 60-month plan. If you are under the median income, your Chapter 13 can be a 36-month payment plan (but can be longer if needed).
The only scenario in which an above-median person in Chapter 13 can be done in less than 60 months is if all their debts have been paid in full before 60 months. Though rare, this can happen.
HOW MUCH WILL MY CHAPTER 13 PAYMENT BE?
Your Chapter 13 monthly payment is determined by the amount of income that remains in your budget after you pay for your normal and reasonable monthly living expenses. Your Chapter 13 does not need to pay all your unsecured creditors in full, and most of the unsecured debt remaining at the end of the plan is discharged as it would have been in a Chapter 7 case.
INCOME: SCHEDULE I
In Schedule I of your bankruptcy petition, we will calculate your expected monthly income for the foreseeable future. This income portion of the budget looks forward and uses your anticipated income including any foreseeable changes. All income must be listed in Schedule I, except that Social Security and Veteran’s disability benefits can be excluded from being considered as income in Schedule I. Fortunately, your real income budget is far more flexible than the means test – the means test may have inflated the amount of your gross income because of overtime or a second job you took on to avoid bankruptcy. If these sources of additional income are stopped, then they will not be included in the budget.
EXPENSES: SCHEDULE J
In Schedule J of your bankruptcy petition, we will calculate your regular monthly expenses for the foreseeable future. This expense portion of the budget looks forward and uses your anticipated average monthly expenses including foreseeable changes. This portion of the budget is able to account for you to maintain a reasonable standard of living during the term of your Chapter 13. We often have clients who have shrunk their expenses to unreasonable levels or have changed their lifestyle in an unsustainable way (such as with living with parents, not maintaining vehicles, going without health insurance, or not eating properly) to try to avoid a bankruptcy. Fortunately, when drafting your budget, we can account for you to have a more reasonable and sustainable life.
We will review your budget carefully with you before your case is filed so that we can be sure it is real, sustainable, and reasonable.