What Are the Requirements to File Chapter 13?
- Chapter 13 bankruptcy is the reorganization chapter for individuals. As with other bankruptcy chapters, a trustee is appointed to supervise the process and meet with both the debtor and the creditors. Together, these parties devise a three- or five-year repayment plan that might reflect some reduction of debt principal or interest. Once the plan is approved by the court, the trustee receives regular monthly payments from the debtor and disburses them to the creditors according to the plan.
- Two of the requirements to file Chapter 13 involve time restrictions on the frequency of filing. You cannot file if you've received a previous discharge under Chapter 13 in the past two years, or under Chapter 7 in the last four. You are also prevented from filing for 180 days if your petition is dismissed for failure to follow an order of the bankruptcy court.
- Chapter 13 has a debt ceiling that's adjusted for inflation every three years. If your total debts are too high, you'll likely be forced to file under Chapter 11 or 7. In Chapter 13, the limit on total secured debt is $1,010,650 (in 2007), and unsecured debt is capped at $336,900 (in 2007).
- The purpose of Chapter 13 is to broker a compromise between a debtor and his creditors, not discharge and forgive debt. To this end, an essential requirement of Chapter 13 is that the debtor's disposable monthly income be adequate to fully satisfy the debts according to a 60-month (5-year) repayment plan. If there is insufficient average monthly income (computed from the three months immediately preceding the filing), the Chapter 13 trustee can move the court to transfer the case to Chapter 7.
- Creditors under Chapter 13 are entitled to receive at least as much as they would under a Chapter 7 liquidation bankruptcy, but the payments comes over time from monthly disposable income rather than the sale of assets. While many would prefer to file Chapter 7, a means test that compares the debtor's income to the median income of the state forces most to file Chapter 13.