Chapter 13 Bankruptcy Overview

Chapter 13 bankruptcy has several important restrictions. Your first step is to see whether or not you are legally allowed to use the Chapter 13 process.

You must have stable and regular income to be eligible for Chapter 13 bankruptcy. That doesn't mean you must earn the same amount every month. But the income must be steady, that is, likely to continue and it must be periodic, weekly, monthly, quarterly, semi-annual, seasonal or even annual.

For you to qualify for Chapter 13 bankruptcy, your income must be high enough so that after you pay for your basic human needs, you are likely to have money left over to make periodic (usually monthly) payments to the bankruptcy court for three to five years. The total amount you must pay will depend on how much you owe and the type of debts you have. A few courts allow you to repay nothing on debts, that legally, don't have to be repaid in full, as long as you repay 100% of the others. Some courts push you to repay as close to 100% of your debts as possible. Most courts fall somewhere in between.

To determine if your disposable income is high enough to fund a Chapter 13 plan, you must create a reasonable monthly budget. If you are not proposing to repay 100% of your debts and the court, the trustee or a creditor thinks your budget is too generous, your budget will be challenged.

You do not qualify for Chapter 13 bankruptcy if your secured debts exceed $807,750. A debt is secured if you stand to lose specific property if you don't make your payments to the creditor. Home loans and car loans are the most common examples of secured debts.

In addition, for you to be eligible for Chapter 13 bankruptcy, your unsecured debts cannot exceed $269,250. An unsecured debt is any debt for which you haven't pledged collateral. The debt is not related to any particular property you possess, and failure to repay the debt will not entitle the creditor to repossess property. Most debts are unsecured, including bank credit card debts, medical and legal bills, student loans, back utility bills and department store charges.