Chapter 13 bankruptcy is distinguished from Chapter 7 bankruptcy norms in terms of complexity. Chapter 13 is much simpler and involves less calculation of various factors like a net of income/expenses, debt, etc. But there are some other factors to be considered for Chapter 13 eligibility. These factors can be listed as follows-
- The chapter is applicable only for individuals hence, business or trusts won’t qualify
- The individual should not have a recent disqualification
- Should be able to demonstrate strong sources of money for making the payments for the plans
- Should have debts within the Chapter 13 debt limits
If you comply with all the factors above, Chapter 13 is more beneficial to you than Chapter 7. The primary reason for this being the arrangement that allows a debtor to pay off debts as per his/her from the disposable income. Some of the tests under Chapter 7 like the ‘means test’ almost creates an unpractical and impossible plan of paying off debts, particularly the unsecured ones. The debtor’s financial status and ability are at the forefront in Chapter 13, which certainly makes it the best option over Chapter 7.
Do you qualify for the Chapter 13 debt limits?
As discussed earlier under the eligibility parameters. There is a certain cap for the debt types, below which all individuals qualify for Chapter 13. That cap or limit can be split as below-
- The limit for Secured debts is $1,257,850 as per the newest debt limit upgrades versus the earlier cap of $1,184,200. If you evaluated your eligibility for Chapter 13 a few months back and thought, you were just over the cap, this hike of about $70k in the cap will help you be eligible now.
- The unsecured debts should be below $419,275, which has been hiked by about $25k from the previous cap of $394,725.
These limits are usually changed once in three years. So, if you are not eligible for Chapter 13 for breaching the debt limits, you might well not be for the next three years, until and unless your debts reverse back below the caps. Reach out to the best at Recovery Law Group for more insight on your eligibility and other viable options.
How does change in limit cap impact an individual?
On the eyes, the limit mentioned above is something which not many will breach. However, the biggest barrier is the home mortgage for many especially for those residing in the expensive states like CA, NY, etc. The mortgage loan by itself could exceed the cap of $1,257,850. The second type of people who could be disqualified are students or newly graduated individuals. If you are carrying an education loan, then there is a high probability that you might exceed the $419,275 cap. As per the latest report, over 6 million students in the US carry over $200,000 of loans. It’s no where near the cap, but many students might be breaching that cap easily.
However, there is some relief for the students. One of the courts recently made a judgment favoring the students. The court said that provided the individual meets all other criterions and is upheld only because of an education loan, then the individual could be eligible for Chapter 13. So, if education loans are troubling you, there can be a positive solution around!
What is not included in the Chapter 13 debt limits?
There are certain types of loans/grants which are not included when calculating the debt limit under Chapter 13. Contingent debts are excluded from the calculation. Contingent debts can be described as a form of liability which depends on a future event or a scenario. The most suitable example for this is if you act as a guarantor on a business/trust loan, you are not liable unless and until the business/trust stops paying the installments or defaults. The same scenario is not applicable for the co-signed debt. Co-sign debt consists of two borrowers, one primary and the other as co-signer. Both usually share equal liability and hence, it has to be included when calculating the net debt for checking eligibility.
The non-liquidated debt is also not included for Chapter 13 calculation. A non-liquidated debt is a debt which has no fixed amount, or the liability cannot be realized appropriately at the present moment. The best example for such debt could be a pending lawsuit. The amount of liability that lawsuit can build upon cannot be accurately determined and hence, it is excluded from the debt calculation for Chapter 13 purposes.
What if you still are not eligible for Chapter 13?
If you do not qualify for Chapter 13, Chapter 11 could be the last hope. However, Chapter 11 is expensive and the whole procedure is very tedious, complicated and long. Consult the best no matter where you are Los Angeles or Dallas, +1 (888) 2976203 is your answer. Get all your questions and doubts addressed right now!