What Are the Qualifications for Chapter 13 Bankruptcy?
Overall, the qualifications for Chapter 13 bankruptcy are that the debtor must be honest and unfortunate. Honest debtors truthfully and accurately complete paperwork, cooperate with the trustee (the person who manages a bankruptcy for a judge), and fully respect the authority of the bankruptcy judge. Unfortunate debtors file bankruptcy due to financial problems which were at least largely beyond their control, not because they ran up gambling debts or were similarly at fault.
If a debtor meets these general qualifications, as well as the specific qualifications listed below, a Chicago bankruptcy lawyer helps debtors take full advantage of this federally-managed debt relief program. These advantages include the Automatic Stay which prohibits creditor adverse actions, property exemptions that block asset liquidation, and debt discharge that applies to most credit card bills and other unsecured debts. Furthermore, Chapter 13 gives debtors up to five years to catch up on past-due home mortgage payments and other such obligations.
Formal Qualifications
Chapter 13 debt ceilings don’t come into play very often, but we should at least mention them, since they’re part of the formal qualifications for Chapter 13 bankruptcy. For cases filed between April 1, 2025, and March 31, 2028, the limits are $1,580,125 for secured debt and $526,700 for unsecured debt.
However, please note that these figures refer to the total amount of debt, not the amount of delinquent debt.
The Chicago housing market is one of the most expensive ones in the country. Even a relatively modest new house and new car could be close to the $1.6 million limit. The $525k unsecured debt limit could be an issue if the debtor has unpaid catastrophic illness medical bills.
Additionally, all Chapter 13 debtors, and all bankruptcy debtors for that matter, must complete a pre-filing debt counseling class and a post-filing budget management class. These classes, which are usually available online, usually cost a few dollars and take a few minutes.
Take care to consult with a Chicago bankruptcy lawyer to ensure that a class is court approved. Many faith-based classes are very helpful, but not court approved.
Informal Qualifications
The formal qualifications apply in all jurisdictions. The informal qualifications vary slightly in different jurisdictions.
Many bankruptcy courts have several qualifications, which are either written or unwritten. The most common one is the Schedule I (monthly income) and Schedule J (monthly expenses) balance.
A monthly debt consolidation payment is a core requirement of a Chapter 13 bankruptcy. This payment must be large enough to pay all allowed claims before the three- or five-year protected repayment period expires. Allowed claims include secured debt arrearage and certain unsecured debts, such as past-due student loan payments. The payment must also take care of the trustee’s fee, which is usually 10 percent, and any other costs.
Usually, the size of a debt consolidation payment is between a car payment and a mortgage payment. So, a Chapter 13 debtor must have sufficient disposable income (the I/J balance) to comfortably make this payment.
If financial circumstances change, a Chicago bankruptcy lawyer usually files a motion to modify the plan payment amount. As long as the revised amount meets minimum legal qualifications, the trustee normally approves it.
Work With a Tough-Minded Cook County Lawyer
No matter what kind of financial problem you are having, bankruptcy could be a way out. For a confidential consultation with an experienced tax lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. We handle a comprehensive range of bankruptcy and other financial relief matters.
Source:
naag.org/attorney-general-journal/supreme-court-report-bartenwerfer-v-buckley-21-908/
