Chapter 13 Tests

Thinking about a Chapter 13 bankruptcy case? Before you can file a case under this chapter of the bankruptcy code, there are a number of “tests” a debtor must pass. Here’s a way to keep track of them all:

Debt limits: Chapter 13 has upper debt limits, but no lower limits. The current upper limits are $1,081,400 for secured debts, and $360,475 for unsecured debts. So you can actually have too MUCH debt for this chapter. The requirement is intended to funnel large business bankruptcies into Chapter 11.

Regular income test: You (or your spouse) will need to have some sort of regular income which which to fund a Chapter 13 plan. The “regular” income doesn’t have to be form a salaried or hourly job, but it shouldn’t be too erratic. Business income can count as regular, even though it varies.

Chapter 13 “means test:” If your household income is above the state average, a string of calculations are applied to you income to determine your minimum monthly plan payment.

Disposable income test: Here, you must determine a monthly budget, and commit your “disposable income,” — what’s left over after paying household bills going forward — to your plan as payment amount. Your disposable income needs to be equal to or greater than the means test figure.

Best interest of the creditors test: if you have property that is not exempt from attachment it will be forfeited in a Chapter 7 case. In a Chapter 13 case, you keep that property, your plan payments have to exceed the value of what your creditors would have received in Chapter 7.

Good faith test: this is a touchy-feelie one. If a judge finds that you didn’t file the case in “good faith,” but perhaps for the purpose of delay, he can dismiss the case.


By Doug Beaton

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