Chapter 13 Eligibility

A debtor will have to meet various criteria before they can seek debt relief from Chapter 13 bankruptcy. For one, a debtor must have an annual income above the Texas median and have enough disposable income to cover payments to creditors. This eligibility is determined by a means test, which is quite tedious.

Chapter 13 is reserved for consumers, but certain business owners may also be eligible for the relief. It’s wise to consult with a bankruptcy attorney before you embark on the path to financial freedom. An attorney can evaluate your situation and ensure Chapter 13 is right for you. 

Bankruptcy Attorney in Dallas County

Deciding to file for bankruptcy is not an easy decision to make on your own. Instead of scouring the internet for answers, consult with an attorney who can help you make an informed decision. Linda Littlefield has nearly 25 years of experience assisting consumers and small businesses with bankruptcy. She will guide you through the process and ensure you receive the financial peace you deserve.

Call (972) 812-0900 to schedule a time to speak with Ms. Littlefield. Littlefield Law Firm is based in Dallas County but regularly assists clients in Collin County, Rockwall County and Kaufman County.

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Taxes and Disposable Income

Tax history and annual income play a significant role in Chapter 13 eligibility. You will be required to prove you paid federal income taxes for the last four years before your bankruptcy filing date. The court may postpone your proceedings so you can catch up on taxes, but don’t count on it. Most Chapter 13 cases will be dismissed if you fail to submit transcripts of returns for those years. 

In addition to tax evidence, you are also required to pass a means test, which is used to calculate if you have enough disposable income to meet repayment obligations. For starters, you will need to make more than the Texas median for the size of your household. According to the United States Department of Justice, the median income for Texas households include the following: 

  • 1 Person: $47,238
  • 2 Persons: $63,148
  • 3 Persons: $69,294
  • 4 Persons: $78,572
  • 5 Persons: $86,972

After income has been determined, you will then need to deduct certain expenses to find out if you will have enough disposable income to pay back creditors. Various costs can be deducted, but they must follow IRS standards. For example, the IRS currently allows for $786 to be deducted for food expenses and $169 for clothes for a family of three. 

In addition to food and clothing, other expenses that may be deducted include:

  • Out-of-pocket healthcare costs
  • Housing costs
  • Utilities
  • Vehicle operation expenses
  • Taxes
  • Involuntary deductions
  • Childcare

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Debt Threshold for Chapter 13

Another factor determining whether a debtor is eligible for Chapter 13 is their amount of debt. You will not qualify for Chapter 13 bankruptcy if your secured and unsecured debts exceed a certain amount. These debt figures change every three years, but as of April 2019, secured debts must be below $1,257,850 and unsecured need to be lower than $419,275.

A debt is considered secured if you will lose certain property if you fail to make payments. Common secured debts include auto loans and a mortgage. But debt is also considered secure if a creditor, such as the IRS, files a lien against property.

Unsecured debts are not secured by property, so you do not risk losing property if you fall behind on payments. The majority of debts are unsecured such as credit card debts, medical and legal bills and back utility bills.   

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Can a Business File for Chapter 13 Bankruptcy?

Chapter 13 bankruptcy was not designed with businesses in mind. Instead, it was created to offer individuals an opportunity to pay back their debts. That being said, there is a way to get around this if you own a business as a sole proprietor.

A sole proprietor is the exclusive owner of a business who is entitled to all profits and liable for all losses. Unlike a limited liability company (LLC) or corporation, the owner of a sole proprietorship is responsible for the debts of their business. The sole proprietor can include their business debts when filing for bankruptcy, but they must file under their legal name, not the name of their business.

A small business run by a sole proprietor will file for bankruptcy the same as a non-business owner. They will still have to pass the means test, complete vast amounts of paperwork and develop a repayment plan. Sole proprietorships with debts above the eligible limit will have to file for Chapter 12 or Chapter 11 bankruptcy.

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Additional Resources

IRS National Standards for Deductible Expenses  – Visit the official website of the United States Department of Justice to gain access to the national standards for deductions. You can find the standards for food, clothing, housing, transportation and other deductible expenses. By accessing the site, you can also find information about means testing and the required counseling and education courses.

 Chapter 13 Bankruptcy Basics | United States Courts – Follow the link to learn more about Chapter 13 bankruptcy. You can learn about its advantages, debt discharge and how to make a payment plan work. You can also find out the benefits of filing with an attorney and learn about bankruptcy trustees.

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Bankruptcy Lawyer in Dallas

Chapter 13 bankruptcy is a complicated legal procedure that should not be done without the help of an attorney. One forgotten piece of information or misquoted expense and your case will be dismissed. Contact Littlefield Law Firm so this does not happen to you.

Take advantage of our free consultations. Call (972) 812-0900 to schedule a time to speak with us. Linda Littlefield assists clients with bankruptcy and related issues in areas such as Dallas, Plano, Heath and Talty.

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