How Do I Know if I Qualify for Chapter 7 or Chapter 13?

Most people qualify for both Chapter 7 and Chapter 13. As outlined below, household income usually determines Chapter 7 qualification. Household debts typically determine if a debtor qualifies for Chapter 13.

In brief, most people with excessive unsecured debts, like credit cards and medical bills, file Chapter 7. This form of consumer bankruptcy quickly discharges these debts. Chapter 13 addresses a different situation. These debtors have up to five years to catch up on past-due secured debt obligations, like mortgage or car payments.

A Chicago bankruptcy lawyer guides debtors through every phase of this legal process, including the qualification for Chapter 7 or Chapter 13 bankruptcy. This guidance helps ensure that distressed debtors get the fresh start the Bankruptcy Code guarantees.

Income Qualification for Chapter 7

When Congress added the means test to Chapter 7 bankruptcy in 2005, many people believed that Chapter 7 was no longer an option. But that’s simply not true.

Under the means test, Chapter 7 debtors must have a below-average income for households of that size elsewhere in the state. As of April 1, 2026, the average annual income for an Illinois family of four is $137,902.

Quite frankly, if a debtor’s income is substantially above this level, the debtor probably doesn’t need to file Chapter 7. Other options, such as non-bankruptcy debt reduction negotiations, are available. If a Chicago bankruptcy lawyer helms these negotiations, most debtors see substantial results, in the form of lower interest rates or partial UPB (unpaid principal balance) forgiveness.

If the debtor’s income is marginally above this level, a Chapter 7 back door may be available. The cost of living is substantially higher in Chicagoland than in other areas of the Prairie State. So, a Chicago bankruptcy lawyer may be able to use actual monthly income and expenses to meet the means test qualification.

This back door opens all the possibilities that Chapter 7 offers, such as the Automatic Stay that halts repossession, foreclosure, wage garnishment, and most other creditor adverse actions.

Both Chapter 7 and Chapter 13 debtors must meet other formal qualifications as well, such as a pre-filing debt counseling class and a post-filing budgeting class. These classes, which are usually available online, usually only take a few minutes and cost a few dollars.

Debt Ceilings in a Chapter 13

Informal qualifications apply in both Chapter 7 and Chapter 13 as well. In a Chapter 13, the debtor must have sufficient disposable income to fund a monthly debt consolidation payment. This payment must be large enough to pay all allowed claims, such as secured debt arrearage, before the judge closes the case.

If the debtor cannot complete the plan for some reason, options are available, such as a plan payment reduction, a conversion to Chapter 7, or a voluntary dismissal and refiling.

However, we’re getting a bit ahead of ourselves. Before Chapter 13 debtors worry about making monthly payments, they must qualify for Chapter 13 bankruptcy. The debt limitations for cases filed between April 1, 2025, and March 31, 2028, are $1,580,125 for secured debts and $526,700 for unsecured debts.

As is the case with the Chapter 7 income qualification, if a debtor’s obligations are too high to qualify for Chapter 13, options are available.

Option one is probably a Chapter 11 bankruptcy. This form of consumer bankruptcy has no debt limit. However, it’s much more expensive and complex than Chapter 13.

Option two is an informal Chapter 20 bankruptcy. A lawyer files Chapter 7, which discharges many debts, as outlined above. Then, a lawyer files Chapter 13, which extends the automatic stay up to five more years and allows debtors to catch up on past-due obligations.

Work With a Dedicated Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.

Source:

justice.gov/ust/eo/bapcpa/20260401/bci_data/median_income_table.htm