Debt Limits for Chapter 7 and Chapter 13 Bankruptcy

Bankruptcy can be confusing and stressful. The following forms and explanations are provided only as general information on the bankruptcy process and are not substitutes for proper legal counsel.

If you are considering filing bankruptcy in the Philadelphia area, call the Law Offices of David M. Offen at (215) 625-9600 to schedule a consultation.

Common Questions on the Limits of Chapter 7:

How do I know if I qualify for Chapter 7

The most reliable way to check if you are eligible to discharge of your debts through a Chapter 7 bankruptcy is to apply the means test. If your household income is lower than the applicable median income, you will be able to file Chapter 7 bankruptcy.  

The means test is set out in a series of official government forms. Federal form 122A-1 will determine if your income is below the median for a comparable household in your area. This would qualify you to file Chapter 7 bankruptcy.

Can you make too much money to file Chapter 7?

Yes. If you could reasonably be expected to pay your debts with your calculated disposable income, you may not qualify for Chapter 7 bankruptcy. There is a second means test form if your income is above the median.

If you pass the additional means test in Federal form 122A-2, you can still qualify for Chapter 7 bankruptcy. Even if you fail the means test, you still might be eligible to establish a repayment plan under Chapter 13.

Active Duty Armed Forces Protections

If you are on active duty in the armed forces or were on active duty for at least 90 days after 11 September 2001 and were on active duty within 540 days of filing for bankruptcy, you can fill out form 122A-1 Supplemental to be exempted from the means tests.

You can also use this form if you are a disabled veteran and your debts mostly occurred while on active duty or performing a homeland defense activity.

How much do you need to file for Chapter 7?

There is not a fixed lower or upper limit to the amount of debt you must carry to qualify for a bankruptcy discharge by filing a Chapter 7.

If you are likely to incur new debts, especially medical debts, one must consider that only debts up to the date of the filing will be discharged, and there will be several years before you could file again.

In the case of debts that are in extreme excess of your ability to repay, your Chapter 7 bankruptcy could be challenged as abusive and you could face accusations of fraud.

Your bankruptcy lawyer should be aware of the potential challenges your filing could face, and you should be cooperative in providing requested documentation to your lawyer to help your case proceed.

How Much Cash is Exempt in Chapter 7?

Federal Law provides much more protection for cash or Liquid assets than is provided for and allowed under Pennsylvania Law. The amount of the exemption allowed under Federal Law is much higher if a person does not use all of his real estate exemption or does not own any real estate.  Pennsylvania’s wildcard exemption is a mere $300.

Social Security benefits and pensions do enjoy some protections from liquidation, as do workman’s compensation payments and other state and federal benefits

For more information on Pennsylvania’s exemptions, you can read our article on Chapter 7 bankruptcy exemptions.  

Common Questions on the Limits of Chapter 13:

How do I know if I qualify for Chapter 13?

• You must have a steady source of income.
• You must be current on tax filings.
• Your debts must be within the allowable limits.
• Your debts must be personal, not business debts.

How much debt can you discharge through Chapter 13?

The Federal Government sets limits on who can be a debtor in a Chapter 13 bankruptcy through 11 USC 109(e).  As of the April 2016 adjustments, a debtor can discharge up to $394,725 in unsecured debts and  $1,184,200 in secured debts through a Chapter 13 bankruptcy.

Do you make enough money to file Chapter 13?

There is not a fixed income requirement to qualify for Chapter 13. How much income you need to qualify is based on your financial obligations and is calculated on a case-by-case basis.

You must show proof that you can meet your priority obligations like child support and taxes, as well as the full repayment of any secured debts where you wish to keep the collateral, such as a house or a car.

How much cash is exempt in Chapter 13?

Under Chapter 13, your assets are not liquidated. You could certainly use cash or savings to meet your repayment obligations, but your assets cannot be seized by creditors who have judgments against you to satisfy outstanding debts while you are under the protection of your Chapter 13 repayment plan.

In Chapter 13 The Court would like to see you pay any excess disposable income to a Trustee who will pay your creditors.  The excess disposable income is calculated after you pay all of your normal monthly living expenses. The excess disposable income is what will be used to pay down your debts.

Find a Bankruptcy Lawyer You Can Trust

If you are in the Philadelphia or the surrounding area, consider the Law Offices of David Offen. Since 1990, Mr. Offen’s firm has helped more than 10,000 clients. To schedule a free consultation today, call The Law Offices of David M. Offen at (215) 625-9600.