What is the maximum income to qualify for Chapter 13?

If you are considering filing for bankruptcy to restructure and manage your debts, you need to understand how you should file based on your circumstances. Factors like assets, income and debt totals all come into play when choosing which chapter to file under. 

Chapter 13 bankruptcy and Chapter 7 bankruptcy are the most common types filed for individuals. While there is no maximum income to qualify for Chapter 13, there are debt limits. We recommend working with a Florida bankruptcy lawyer from Hoskins, Turco, Lloyd & Lloyd to tackle the bankruptcy process as smoothly as possible. 

Income Requirements and Bankruptcy 

If you have income higher than the limits allowed under Chapter 7 bankruptcy rules, Chapter 13 bankruptcy will likely be the bankruptcy filing option for you. Chapter 13 bankruptcy is particularly useful for certain types of individuals dealing with the foreclosure process. Filing Chapter 13 bankruptcy can halt the foreclosure process, in many instances, giving borrowers a chance to catch up on their mortgage payments. Similarly, creditors cannot solicit you to repay debts currently in collections during the course of your automatic stay and bankruptcy proceedings. 

While Chapter 13 bankruptcy allows you to restructure and repay your debts according to a set payment plan, Chapter 7 bankruptcy involves liquidating non-exempt assets to repay a portion of debts and forgiveness (discharge) of the remaining debts. To better understand whether Chapter 13 bankruptcy is suitable for your situation or another form of filing might be more appropriate, let’s look at how income impacts the process. 

The Means Test and Chapter 7 Income Limits 

In order to restrict eligibility for Chapter 7 bankruptcy, the federally run U.S. bankruptcy courts implement a means test. The means test determines if an individual has enough money to repair their debts through their own means, as determined by the court. 

For most bankruptcy cases, if your income is higher than Florida’s median income, you are required to take the means test. The test compares your income to expenses and deductions. If you have more income than what is allowed under Chapter 7 bankruptcy, you will be barred from filing under that chapter and will need to consider alternatives like Chapter 13 bankruptcy if you still want to move forward. 

Chapter 13 Debt Limits 

As mentioned, there is no means test or maximum income to qualify for Chapter 13. However, if your income is too low, the court will assume you cannot fund a repayment plan, and you will not be able to move forward with your petition. 

As individuals, debtors cannot have more than $419,275 in unsecured debts and $1,257,850 in secured debts. It is important to note that the debt limits adjust every three years, with an adjustment occurring on April 1, 2022. 

Examples of unsecured debt include:

    • Credit card balances 
    • Medical bills 
    • Unsecured taxes 
  • Lines of credit 

While technically considered unsecured, note that student loans are not eligible for a repayment plan or discharged via bankruptcy except in particular instances where repayment would create a demonstrable hardship.

Examples of secured debt include:

  • Mortgages against secured real estate
  • Auto loans 
  • Collateral like electronics, equipment, and jewelry 
  • Some taxes 

When you propose a repayment plan, your trustee will consider all applicable outstanding debts. If you make all of your payments on time for the three or five-year period, any remaining unsecured debts may be discharged. You will need to submit your application for those dischargeable debts at the end of your repayment plan. The final process may take six to eight weeks once the payment plan has been completed.

How Does Income Factor Into Chapter 13?

While those looking to file under Chapter 13 do not have to undergo the means test, there is a similar income test petitioners must take. Essentially, the court will need to ensure your income is high enough to fund your repayment plan. 

In addition to verifying that you have enough income to participate in a payment plan, the court will also look at your disposable income. That figure is used to determine how long your repayment period will last and what your monthly payments will be. This test will again refer to Florida’s median income as an early indicator. As of 2019, the median household income in Florida was $55,660. That amount changes yearly to fluctuate with the average income based on jobs and salaries. 

If you make more than the median income, your repayment plan will likely last for five years — meaning you will repay a more-significant portion of your debt. If your income is less than the state median, your repayment plan will likely only last for three years. In either situation, any remaining unsecured debts may still be discharged at the end of the plan.

Note that not all income is included in the formulation of your applicable income in regards to Chapter 13 bankruptcy or Chapter 7 bankruptcy. Some income may be exempted, and your income may also be reduced according to certain expenses.

It is also important to note that if you are unable to follow through on your repayment plan, you could lose your Chapter 13 status. Depending on the situation, your case could be outright dismissed or converted to a Chapter 7 bankruptcy case. In either case, you could be at risk of losing assets like your home or vehicle. 

Chapter 13 Bankruptcy Alternatives 

In the event your debts exceed the Chapter 13 limits, or you do not make enough money to reasonably repay your debts, you have the option of applying for Chapter 7 or Chapter 11. As mentioned, Chapter 7 does not allow for restructuring but rather liquidates assets in order to pay debts. Chapter 11 does allow debtors to reorganize their debt, but it is typically filed by large businesses, partnerships, and sole proprietorships. However, the option is available to individuals and married couples. 

If you are uncertain which chapter filing is best for your situation, you should consider getting in touch with a bankruptcy attorney. They can evaluate your debt and income, determine your options, and explain the strategies available to help you achieve the outcome you want. 

Contact a Florida Chapter 13 Bankruptcy Attorney

If you are in a position where you are considering filing for bankruptcy, Hoskins, Turco, Lloyd & Lloyd can help. Our Chapter 13 bankruptcy attorneys have comprehensive knowledge of the filing process and Florida’s relevant laws and requirements. 

We want you to know that filing for bankruptcy does not mean you have failed. Millions of individuals struggle with debt. Taking control of your situation, managing those debts, and planning for a better financial future is always a step in the right direction. 

The filing process can take time, so the sooner you get in touch with our law firm, the faster we can get you on track to a healthier financial future. To learn more or get started with the bankruptcy process, call (866) 460-1990 or contact us online to schedule a free consultation with our law firm today.

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