Financial Requirements For Filing For Chapter 13 Bankruptcy

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There are a number of financial requirements for filing chapter 13 bankruptcy cases. Chapter 13 is a legal option which allows people to repay their debts over a three to five year period. More importantly, filing chapter 13 provides people legal protection through an automatic stay. The automatic stay can stop foreclosures, wage garnishments and lawsuits. However, before individuals can benefit from filing chapter 13 bankruptcy cases, they must fulfill the financial requirements.

Chapter 13 Is For People with Regular Income

Chapter 13 is known as wage earner’s bankruptcy. In other words, people must have regular income such as a job. If they don’t have some form of regular income, filing for chapter 13 bankruptcy isn’t possible. For individuals, who aren’t employed can still file. For instance, self-employment income, pension payments, Social Security payments and royalties and rents are also included as regular income. Also, the income doesn’t have to belong to individuals for the income to count. For example, a nonworking spouse filing for chapter 13 bankruptcy can us money from their working spouse as a source of income, according to Nolo.

Individuals Must Have Adequate Disposable Income Meet Financial Requirements

To qualify, people must fail a means test set up by the U.S. Bankruptcy Court. The means test compares people’s income—after all monthly bills are paid—to their state’s median income for their particular household. This means if a person has a household size of 2 people then they would compare their state’s median income for a household of 2 people. If their income is over their state’s median income, they fail the means test. In other words, they have enough eligible income to repay their debts.

Individuals Can’t Have Too Much Debt

Although people must have enough debt to repay back to creditors, their debt can exceed a certain amount. As of 2010 individuals’ secured debts can’t exceed $1,081,400. Secured debt is considered anything backed by collateral. Thus, when people default creditors can take the property such as homes or cars. Also, their unsecured debt such as credit card payments can’t exceed $360,475, as of 2010.

Contact a Bankruptcy Lawyer about Meeting Financial Requirements

A bankruptcy lawyer can use their expertise to determine if people meet the financial requirement to file chapter 13. They will over the means test and the bankruptcy process. Also, the bankruptcy lawyer will file the required paperwork for individuals.