Chapter 13 bankruptcy allows you to reorganize debt through a repayment plan that spans three to five years, but strict federal and state rules determine who qualifies. Federal law under 11 U.S.C. § 109(e) sets clear debt limits, income requirements, and filing restrictions that can prevent you from using this relief option. When you fail to meet even one of these requirements, the bankruptcy court will dismiss your case or deny confirmation of your repayment plan, leaving you vulnerable to creditors and collection actions.
The Bankruptcy Abuse Prevention and Consumer Protection Act created mandatory tests and requirements that have made Chapter 13 filings more complex since 2005. According to recent federal court data, only 49.3% of Chapter 13 plans were successfully completed in 2024, with more than half dismissed before completion. This high failure rate stems largely from filers who either failed to meet initial eligibility requirements or encountered disqualifying issues during the repayment period.
Approximately 226,777 Chapter 13 cases were closed in 2020, with 116,145 dismissed rather than completed according to United States Courts statistics.
What You Will Learn:
🔍 The specific debt limits that prevent you from filing Chapter 13 and what happens when business partnerships or guarantees push you over the threshold
💰 Income requirements that determine whether your earnings are too low to fund a plan or too irregular to satisfy the “regular income” test under federal law
⚖️ Previous bankruptcy filings that create mandatory waiting periods and how serial filer restrictions under 11 U.S.C. § 362(c) can eliminate your automatic stay protection
📋 Tax return and credit counseling failures that trigger automatic dismissal under 11 U.S.C. § 1307(e) before your case ever reaches the confirmation hearing
🚫 Bad faith filing patterns that courts identify using the In re Eisen test, including examples of debtors barred from refiling for years due to fraud or manipulation
Why Federal Law Creates These Barriers
Section 109(e) of the Bankruptcy Code establishes that only individuals with regular income who owe noncontingent, liquidated debts below statutory limits may file Chapter 13. Congress designed these restrictions to ensure that Chapter 13 serves wage earners who can realistically fund a repayment plan while Chapter 7 or Chapter 11 serve other debtor categories. The debt limits prevent high-debt individuals from using Chapter 13’s flexible provisions to avoid the stricter requirements of Chapter 11, which requires creditor voting and more extensive disclosure.
The consequence of failing to meet these eligibility requirements extends beyond simple dismissal. Under 11 U.S.C. § 1307(c), a court can dismiss your case with prejudice, barring you from refiling bankruptcy for 180 days or longer. This leaves you exposed to garnishments, foreclosures, repossessions, and lawsuits while you wait out the mandatory bar period.
Debt Limits That Automatically Disqualify You
The bankruptcy code sets separate debt ceilings for secured and unsecured obligations, and both must be satisfied independently. As of April 1, 2025, through March 31, 2028, the limits are $1,580,125 for secured debts and $526,700 for unsecured debts according to adjusted threshold amounts. These figures apply to cases filed during this three-year period and adjust automatically based on inflation.
Only debts that are noncontingent and liquidated count toward these limits. A noncontingent debt is one you currently owe without requiring a future event to trigger liability. A liquidated debt has a determinable amount that can be calculated with certainty.
| Debt Type | April 2025 Limit |
|---|---|
| Secured Debt | $1,580,125 |
| Unsecured Debt | $526,700 |
What Counts as Secured Debt
Secured debts include any obligation backed by collateral that a creditor can seize if you default. Mortgage balances on your primary residence, second homes, investment properties, car loans, boat loans, and equipment financing all count as secured debt. Tax liens filed by the IRS or state tax authorities against your property also increase your secured debt total because the government has a legal claim against specific assets.
The full balance of each secured debt counts toward the limit, not just the equity in the collateral. If you owe $400,000 on a mortgage for a house worth $350,000, the entire $400,000 counts as secured debt even though you have no equity. The distinction matters significantly when calculating whether you exceed the threshold.
Partnership and Guaranty Complications
When you serve as a general partner in a business partnership, state partnership law determines whether partnership debts count toward your individual Chapter 13 debt limits. Under most state partnership statutes, general partners have personal liability for partnership obligations. If state law makes you principally liable on partnership debt, the entire partnership debt amount counts toward your secured or unsecured debt limit depending on whether collateral secures the obligation.
Personal guarantees create similar complications. When you guarantee a loan for a corporation you own or for a third party, the guaranteed amount may count as noncontingent debt if the loan agreement contains provisions making the debt immediately due upon your bankruptcy filing. In In re Singh, a debtor’s corporate guarantee became noncontingent the moment he filed bankruptcy because the loan agreement defined the filing itself as an “event of default” that accelerated the debt.
Courts treat partnership debts secured by partnership property as unsecured in your individual bankruptcy case because you do not personally own the collateral. The debt remains noncontingent, meaning it counts toward your unsecured debt limit rather than being excluded from the eligibility calculation.
| Scenario | Impact on Debt Limits |
|---|---|
| You guarantee your corporation’s $600,000 loan | Guaranteed amount counts as unsecured debt if corporate default triggers your liability |
| You are general partner in partnership owing $700,000 | Full partnership debt counts if state law makes you principally liable |
| Partnership owns collateral securing its debt | Counts toward your unsecured limit, not secured, because you don’t own collateral |
Consequences of Exceeding Debt Limits
When your debts exceed Chapter 13 limits, the court must dismiss or convert your case under 11 U.S.C. § 1307(c). Some courts have discretion to allow you to cure the problem by paying down debt to bring you under the thresholds before the confirmation hearing, but most jurisdictions require dismissal. Your alternatives include Chapter 11 bankruptcy, which has no debt limits but requires compliance with more complex reorganization rules including creditor voting, or Chapter 7 liquidation if you pass the means test.
The temporary high debt limit of $2,750,000 that applied during the COVID-19 pandemic expired on June 21, 2024. Debtors who relied on that combined threshold and filed after June 2024 faced immediate eligibility problems if their debts exceeded the reverted two-part limits.
The Regular Income Requirement
Section 109(e) restricts Chapter 13 to individuals “with regular income,” defined as income that is “sufficiently stable and regular” to enable you to make payments under a Chapter 13 plan. The income does not need to come from employment. Self-employment income, Social Security benefits, pension payments, rental property income, alimony, child support, and even regular gifts from family members can satisfy this requirement according to eligibility standards.
The regularity test focuses on predictability rather than amount. Seasonal workers who have documented employment patterns each year may qualify because their income, while fluctuating, follows a consistent annual cycle. Contract workers with irregular project-based income face greater scrutiny because trustees and courts must evaluate whether the income stream provides enough stability to fund a three-to-five-year plan.
Income Too Low to Fund a Feasible Plan
Bankruptcy courts apply a feasibility test under 11 U.S.C. § 1325(a)(6) that requires proof you can make all payments under your plan and comply with its terms. When your income falls below the amount needed to pay mandatory expenses (housing, utilities, food, transportation) plus required plan payments for priority debts and secured creditors, the court will deny confirmation. This creates an effective minimum income threshold even though the Bankruptcy Code contains no stated minimum.
Chapter 13 trustees object to plans they believe are not feasible based on the debtor’s income and expenses. When your Schedule I (income) minus Schedule J (expenses) leaves insufficient disposable income to fund priority tax debts, mortgage arrears, and trustee fees, the trustee will file an objection. The bankruptcy judge can either deny confirmation or allow you time to file an amended plan with lower payments, but if no feasible plan exists, dismissal becomes inevitable.
New York’s Eastern District applies particularly strict scrutiny to income calculations and requires debtors to turn over 100% of tax refunds each year, reducing available cash for emergencies and making feasibility analysis more challenging. The Southern District permits retention of up to $1,500 in aggregate tax refunds annually, giving debtors more flexibility.
| Income Source | Qualifies as Regular Income |
|---|---|
| W-2 employment wages | Yes, if ongoing employment |
| Self-employment income | Yes, if consistent business income demonstrated for several months |
| Social Security retirement | Yes, monthly government benefits are highly regular |
| Rental property income | Yes, if rental history shows consistent occupancy |
| Seasonal farm income | Yes, if pattern repeats annually with documented history |
| One-time lawsuit settlement | No, non-recurring lump sum payment |
| Occasional freelance projects | No, lacks regularity and predictability |
Self-Employment Income Calculations
Self-employed debtors face unique challenges when calculating “current monthly income” under 11 U.S.C. § 101(10A). Section 101(10A) defines current monthly income as average monthly income from all sources received during the six calendar months before filing. For self-employed individuals, net income after ordinary business expenses counts rather than gross receipts.
Official Form 122C-1 requires self-employed debtors to report monthly gross receipts minus ordinary and necessary business expenses. Courts scrutinize these expense deductions carefully because overstating business expenses artificially reduces current monthly income, potentially shortening the mandatory plan length from five years to three years or reducing required payments to unsecured creditors. The IRS standards for allowable expenses apply when calculating disposable income, but actual business expenses control the current monthly income calculation.
Business income that fluctuates dramatically from month to month raises feasibility concerns. When your six-month average shows $5,000 monthly income but three of those months had $8,000 income and three had $2,000, the trustee will question whether you can maintain consistent plan payments through economic cycles. The court may require additional documentation showing business stability or deny confirmation based on unpredictable cash flow.
Entity Type Restrictions
Chapter 13 relief is available only to individuals, including married couples filing jointly. Corporations, limited liability companies (LLCs), partnerships, and other business entities cannot file Chapter 13 under any circumstances. Section 109(e) explicitly excludes stockbrokers and commodity brokers from eligibility, even if they operate as individuals.
Sole proprietors can file Chapter 13 for both personal and business debts because the sole proprietorship has no separate legal existence from the individual owner. When you operate an unincorporated business as a sole proprietor, your business debts are personal debts, and your business assets are personal assets. This allows you to propose a Chapter 13 plan that addresses business obligations while continuing to operate the business.
Partnership Interests and Multimember LLCs
If you own an interest in a partnership or multimember LLC, your ownership interest becomes property of the bankruptcy estate when you file. State law often prohibits the trustee from interfering with business operations or taking business assets unless you are the majority owner. The trustee may obtain a “charging order” against your interest, giving the trustee the right to receive any distributions you would have received from the business.
Many partnership and LLC operating agreements contain buy-sell provisions requiring termination of an owner’s interest before filing bankruptcy. Violating these provisions by filing without first divesting your interest can trigger breach of contract claims from co-owners. These provisions can complicate or prevent Chapter 13 filing for business owners with significant partnership interests.
| Business Structure | Chapter 13 Eligibility |
|---|---|
| Sole proprietorship | Eligible—owner files individually for personal and business debts |
| General partnership | Not eligible—partnership cannot file Chapter 13, individual partners can file for personal liability |
| Corporation (C-corp or S-corp) | Not eligible—must file Chapter 7 or Chapter 11 |
| Limited Liability Company | Not eligible—must file Chapter 7 or Chapter 11 |
| Stockbroker (individual) | Not eligible—expressly excluded by 11 U.S.C. § 109(e) |
| Commodity broker (individual) | Not eligible—expressly excluded by 11 U.S.C. § 109(e) |
Previous Bankruptcy Discharge Bars
Federal law imposes mandatory waiting periods between receiving a bankruptcy discharge and filing a new case that qualifies for discharge. The “2-4-6-8 Rule” establishes these timeframes and prevents serial filers from repeatedly using bankruptcy to evade creditors without making good faith repayment efforts.
You must wait two years from the filing date (not discharge date) of a previous Chapter 13 case to file another Chapter 13. You must wait four years from filing a Chapter 7 to file a Chapter 13 that qualifies for discharge. This four-year gap creates the “Chapter 20” strategy where debtors file Chapter 7 to discharge unsecured debts, then file Chapter 13 years later to cure mortgage or car loan arrears.
Waiting six years from filing a Chapter 13 is required before filing Chapter 7, with an exception if you paid at least 70% of allowed unsecured claims in the initial Chapter 13 under a good faith plan. Waiting eight years from filing Chapter 7 is mandatory before filing another Chapter 7 that qualifies for discharge.
Dismissal vs. Discharge
These waiting periods apply only when you received a discharge in the prior case. If your previous bankruptcy was dismissed without discharge—whether Chapter 7 or Chapter 13—no waiting period applies for subsequent filings under the discharge timing rules. You can file a new case immediately after dismissal, but other restrictions may apply depending on the reason for dismissal.
The 180-day bar under 11 U.S.C. § 109(g) prevents refiling any bankruptcy chapter for 180 days if your prior case was dismissed after you willfully failed to appear in court or comply with orders, or if you requested dismissal after a creditor sought relief from the automatic stay. This bar applies regardless of which bankruptcy chapter you filed previously or intend to file next.
| Previous Case | Waiting Period to File Chapter 13 |
|---|---|
| Chapter 13 discharge received | 2 years from filing date of prior case |
| Chapter 7 discharge received | 4 years from filing date of prior case |
| Chapter 11 discharge received | 4 years from filing date of prior case |
| Chapter 12 discharge received | 4 years from filing date of prior case |
| Any chapter dismissed | No discharge-based wait, but 180-day bar may apply if dismissed for cause |
Serial Filer Automatic Stay Limitations
Section 362(c)(3) of the Bankruptcy Code drastically limits the automatic stay for debtors who had one prior case dismissed within one year before filing. The stay terminates automatically 30 days after filing the second case unless you file a motion showing the second filing was in good faith and the court grants an extension.
When you had two or more cases dismissed within one year, Section 362(c)(4) prevents the automatic stay from going into effect at all when you file another case. You must file a motion within 30 days of filing requesting that the court impose the stay, and you must prove by clear and convincing evidence that the new filing is in good faith. Without the automatic stay, creditors can continue foreclosures, repossessions, garnishments, and lawsuits despite your pending bankruptcy.
Courts evaluate good faith using factors from Leavitt v. Soto, including whether you misrepresented facts in your petition, your history of filings and dismissals, whether you filed to defeat state court litigation, and whether egregious behavior is present. The burden rests on you to prove good faith, not on creditors to prove bad faith.
Property of the Estate Distinction
The serial filer stay limitations apply differently to (1) the debtor personally, (2) property of the debtor, and (3) property of the bankruptcy estate. When Section 362(c)(3) causes the stay to terminate 30 days after filing, it terminates only concerning the debtor and property of the debtor. The stay continues concerning property of the estate.
Your home becomes property of the estate when you file Chapter 13. Until your plan is confirmed, the home remains protected by the stay as property of the estate even if the 30-day period expires without you extending the stay. This technical distinction gives repeat filers a window to confirm a plan and cure mortgage arrears before the stay terminates. However, Section 362(c)(4) provides no such protection because the stay never goes into effect when you had two or more dismissals within a year.
Pre-Filing Credit Counseling Failure
Every individual filing bankruptcy must complete credit counseling from an approved agency within 180 days before filing the petition. Section 109(h) of the Bankruptcy Code establishes this mandatory requirement. The counseling session typically lasts 60-90 minutes and can be completed online, by phone, or in person.
You must file the certificate of completion with your bankruptcy petition or within 15 days after filing. Failure to complete counseling or file the certificate results in automatic dismissal of your case. No exceptions exist except for debtors who are physically unable to complete counseling due to disability or military service in a combat zone.
The credit counseling agency reviews your income, expenses, and debts to determine whether alternatives to bankruptcy exist. The agency must provide a budget analysis and may propose a debt management plan (DMP). You are not required to accept or follow the DMP—you only need to participate in the counseling and receive the certificate. If the agency does propose a repayment plan, you must file it with the court along with the completion certificate.
Distinguishing Credit Counseling from Debtor Education
Many filers confuse the pre-filing credit counseling requirement with the post-filing debtor education requirement. These are separate courses with different purposes. Credit counseling occurs before filing to explore bankruptcy alternatives. Debtor education occurs after filing and before discharge, teaching financial management skills to help you avoid future financial distress.
You must complete the debtor education course and file the certificate within 60 days of the first date set for the meeting of creditors. Failure to complete debtor education prevents the court from granting your discharge, leaving you with a completed plan but no debt relief. Both requirements must be satisfied for successful completion of Chapter 13.
Unfiled Tax Return Disqualification
Section 1308 of the Bankruptcy Code requires you to file all federal and state tax returns due within the four years ending before your bankruptcy petition date. You must file these returns with the appropriate tax authorities (IRS, state revenue department) no later than the day before your meeting of creditors under 11 U.S.C. § 341(a).
The Chapter 13 trustee can hold the meeting open for up to 120 days to give you time to file missing returns. If you fail to file the required returns within this period, Section 1307(e) requires the court to dismiss your case or convert it to Chapter 7, whichever is in the best interest of creditors and the estate. Most courts dismiss rather than convert because debtors who neglected to file tax returns rarely qualify for Chapter 7 discharge of tax debts.
Practical Filing Requirements
Chapter 13 trustees in most districts require you to provide copies of tax returns or IRS transcripts covering the four-year period. In Maryland’s District Court, Local Bankruptcy Rule 1017-1 mandates dismissal for failure to provide this documentation. Trustees review these returns to verify income reported on your bankruptcy schedules and to calculate priority tax claims that must be paid in full through your plan.
You must also continue filing all tax returns that become due during your Chapter 13 case. Failure to file annual returns during your plan provides grounds for dismissal under Section 1307(c)(11), which allows conversion or dismissal for “failure of the debtor to pay any domestic support obligation that first becomes payable after the date of filing of the petition.” The same principle applies to tax filing obligations.
| Tax Return Issue | Consequence |
|---|---|
| Missing returns from 4-year lookback period | Mandatory dismissal under 11 U.S.C. § 1307(e) if not filed before extended deadline |
| Returns filed but copies not provided to trustee | Case dismissed under local rules for failure to provide required documentation |
| Returns filed late with IRS during 4-year period but before bankruptcy | Acceptable if filed with tax authority, even if late penalties were assessed |
| Failure to file annual returns during Chapter 13 plan | Dismissal under 11 U.S.C. § 1307(c)(11) for failing to meet ongoing obligations |
Bad Faith Filing
Courts can dismiss Chapter 13 cases filed in bad faith even when the debtor technically meets all eligibility requirements. Section 1307(c) authorizes dismissal “for cause,” and courts consistently hold that bad faith filing constitutes sufficient cause. Section 1325(a)(3) independently requires that the plan be “proposed in good faith and not by any means forbidden by law” as a condition for confirmation.
The Ninth Circuit established the test for bad faith in Leavitt v. Soto and In re Eisen. Courts apply a “totality of the circumstances” analysis considering these factors:
1. Whether the debtor misrepresented facts in the petition or plan, unfairly manipulated the Bankruptcy Code, or otherwise filed the petition or plan in an inequitable manner
2. The debtor’s history of filings and dismissals, particularly patterns of filing cases immediately before scheduled foreclosure sales or evictions
3. Whether the debtor intended to defeat state court litigation by using bankruptcy’s automatic stay to halt proceedings where the debtor was facing an adverse judgment
4. Whether egregious behavior is present, such as concealing assets, lying under oath, or creating sham transactions to manipulate debt levels
Examples of Bad Faith Filings
In In re Gurz, the debtor filed his seventh bankruptcy case since 2008, with six previous Chapter 13 cases all dismissed before plan confirmation and one Chapter 7 that resulted in discharge. The trustee moved to dismiss with prejudice based on the debtor’s pattern of filing cases within days of scheduled foreclosure law days in state court. The court found the debtor filed to delay and frustrate foreclosure proceedings rather than to make good faith repayment efforts, especially since the debtor’s Schedules I and J showed negative net income making any plan infeasible. The court dismissed with prejudice and imposed a two-year bar preventing the debtor from refiling any bankruptcy case in any jurisdiction.
In a Ninth Circuit BAP opinion, a husband and wife filed nearly a dozen bankruptcy cases over a decade, including six cases within three years. None of the filings resulted in plan confirmation or discharge. The bankruptcy court found the couple’s filings were “clear attempts to hinder Salton’s ability to secure its legal rights to the residence” and represented manipulative intent. The appellate panel affirmed dismissal for bad faith and imposed a two-year refiling bar, noting that the debtors’ own admission of being “serial filers” combined with their pattern of coordinated spousal filings demonstrated egregious behavior.
Asset concealment represents one of the most common forms of bad faith. In Marrama v. Citizens Bank, the Supreme Court addressed a Chapter 7 debtor who transferred his Maine property into a trust within seven months before filing, listed the trust’s value as zero on his schedules, and denied transferring any property during the year preceding his petition. When the trustee discovered the fraud, the debtor attempted to convert to Chapter 13, but the Court held that prepetition bad faith conduct caused a forfeiture of the right to convert.
| Bad Faith Indicator | Typical Court Response |
|---|---|
| Filing days before scheduled foreclosure sale repeatedly | Dismissal with prejudice, refiling bar of 6 months to 2 years |
| Concealing assets on schedules or understating property values | Dismissal with prejudice, possible fraud referral to U.S. Trustee |
| Lying under oath at meeting of creditors | Dismissal with prejudice, potential perjury charges |
| Proposing plan with negative monthly income showing no feasibility | Dismissal without prejudice, opportunity to file amended plan |
| Filing to delay imminent judgment in state court litigation | Dismissal with prejudice if pattern of abuse shown |
Failure to Make Plan Payments
Section 1326(a)(1) requires debtors to begin making plan payments to the trustee within 30 days after filing the petition, even before the court confirms the plan. Failure to commence timely payments constitutes grounds for dismissal under 11 U.S.C. § 1307(c)(4). The trustee holds these initial payments until plan confirmation, at which point payments are distributed according to the confirmed plan or returned to you (minus administrative expenses) if the plan is denied.
The 30-day payment deadline is strictly enforced in most districts. When you miss the deadline, the trustee typically files a motion to dismiss within days. The court schedules a hearing giving you 2-4 weeks to cure the default or explain why payments were not made. Without a compelling reason or immediate cure, courts dismiss the case, terminating the automatic stay and exposing you to renewed collection actions.
Post-Confirmation Payment Defaults
Material default with respect to a term of a confirmed plan under Section 1307(c)(6) also allows dismissal or conversion. More than half of all Chapter 13 cases dismissed were dismissed for failure to make plan payments according to 2024 statistics. Missing payments after confirmation creates arrears that compound monthly, making it progressively harder to catch up.
Trustees may allow short-term payment suspensions when debtors experience temporary hardships like job loss or medical emergencies. Some districts permit informal modification where the trustee accepts reduced payments for several months with makeup payments spread over remaining plan months. Formal plan modification under Section 1329 requires filing a motion with the court, notice to all creditors, and a hearing if any party objects.
| Payment Scenario | Outcome |
|---|---|
| No payment within 30 days of filing | Trustee files motion to dismiss under § 1307(c)(4) |
| Partial payment made showing good faith | Judge may grant additional time to cure, deny dismissal motion |
| Multiple missed payments after confirmation | Material default under § 1307(c)(6), dismissal likely |
| One missed payment due to documented emergency | Trustee may allow informal suspension, require makeup payment |
| Chronic late payments (5-10 days each month) | Trustee may file to dismiss or modify payment method to wage order |
Feasibility and Best Interest Test Failures
Section 1325(a)(6) requires proof that “the debtor will be able to make all payments under the plan and to comply with the plan.” This feasibility requirement prevents confirmation of plans that are aspirational rather than realistic. Courts evaluate feasibility by comparing your Schedule I income against Schedule J expenses plus required plan payments for secured creditors, priority debts, and administrative expenses.
A plan must also satisfy the “best interests of creditors” test under Section 1325(a)(4). Unsecured creditors must receive at least as much under your Chapter 13 plan as they would receive if your case were filed as a Chapter 7 liquidation. The test requires calculating the value of your non-exempt property, subtracting costs of sale and administrative expenses, then comparing the resulting liquidation value to the total distributions unsecured creditors will receive over your plan’s life.
When You Have Non-Exempt Assets
The best interest test becomes critical when you own valuable property that exceeds available exemptions. If you have $25,000 in non-exempt equity in a vehicle collection and your plan proposes paying unsecured creditors only $10,000 over five years, the plan fails the best interest test. You must either surrender the vehicles, increase plan payments to provide unsecured creditors at least $25,000, or convert to Chapter 7 and lose the non-exempt vehicles to liquidation.
Chapter 13 filers in New York’s Eastern District face particularly strict application of these tests because trustees require surrender of 100% of tax refunds, reducing disposable income available for emergencies. Southern District filers retain up to $1,500 annually in combined federal and state refunds, providing modest financial flexibility that can prevent plan failure when unexpected expenses arise.
Disposable Income Calculations
The disposable income test under Section 1325(b) applies when the trustee or an unsecured creditor objects to plan confirmation. “Disposable income” means current monthly income less amounts reasonably necessary for maintenance and support of you and your dependents. Above-median income debtors must calculate reasonably necessary expenses using IRS National and Local Standards from the means test on Official Form 122C-2. Below-median income debtors may use actual expenses from Schedule J.
Current monthly income is calculated by averaging all income from all sources (with limited exceptions like Social Security) received during the six calendar months before filing. This backward-looking calculation creates problems when income drops significantly just before filing. Courts have discretion to adjust projected disposable income for known or virtually certain changes in income or expenses, but the starting point remains the six-month historical average.
Creditor Objections
Secured creditors, unsecured creditors, and the Chapter 13 trustee all have standing to object to plan confirmation. Common objections include:
Lack of good faith where creditors receive less in Chapter 13 than they would in Chapter 7 liquidation, violating the best interest test
Inaccurate listing of debt where the plan omits debts or understates balances, giving an artificially low debt total
Misclassification of debt where secured debt is listed as unsecured to pay it at a reduced percentage rather than in full
Unlawful cramdown attempts to reduce secured debt on vehicles purchased within 910 days before filing or on real estate other than principal residence
Plan not feasible based on creditor analysis of your income and expenses showing inability to sustain payments
Improper priority giving junior creditors payments before senior creditors receive full satisfaction
Cramdown Limitations
Cramdown provisions in Section 1325(a)(5)(B) allow you to reduce secured debt to the replacement value of collateral when the debt exceeds the collateral’s worth. A $30,000 car loan on a vehicle worth $18,000 can be crammed down to $18,000, with the remaining $12,000 treated as unsecured debt receiving only the percentage paid to general unsecured creditors. The 910-day rule prohibits cramdown on vehicles purchased within 910 days (about 2.5 years) before filing. The one-year rule prohibits cramdown on other personal property purchased within one year before filing.
Secured creditors frequently object to cramdown valuations, arguing the vehicle or property is worth more than the debtor claims. Valuation disputes often require expert testimony from appraisers and can significantly delay confirmation. The Supreme Court in Associates Commercial Corp. v. Rash held that replacement value—what a willing buyer would pay for the collateral in its current condition—controls cramdown valuations, not liquidation value or wholesale value.
Domestic Support Obligation Requirements
Section 1325(a)(8) prohibits plan confirmation unless you have paid all amounts required under domestic support obligations that first became payable after filing your petition. Domestic support obligations include alimony, child support, and spousal maintenance owed under court orders, separation agreements, or statutes. You must be current on post-petition support payments at the confirmation hearing even if you owe substantial pre-petition arrears.
Section 1307(c)(11) allows dismissal or conversion for “failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.” Missing even a single post-petition support payment provides grounds for dismissal. The automatic stay does not prevent collection of post-petition domestic support obligations, and recipients can pursue wage garnishment and other remedies for post-petition arrears even while your Chapter 13 case is pending.
Pre-Petition Arrears Treatment
Pre-petition domestic support arrears receive priority claim status under 11 U.S.C. § 507(a), placing them ahead of most other debts. Your Chapter 13 plan must provide for payment of these arrears in full, though you can spread payments over the three-to-five-year plan period. Section 1322(a)(2) requires full payment of all priority claims unless the claim holder agrees to different treatment.
Section 1328 conditions discharge on certification that all domestic support obligations have been paid. The court will not grant discharge until you file a certification on Official Form 283 stating that you paid all amounts under domestic support obligations that became due before making the certification. This requirement catches debtors who completed their plans but fell behind on ongoing support during the three to five years, preventing discharge until all arrears are cured.
Converting to Chapter 7
Section 1307(a) gives you an absolute right to convert your Chapter 13 case to Chapter 7 at any time, with one major restriction: Section 1307(g) prohibits conversion unless you would be eligible to be a debtor under Chapter 7. You cannot convert if you received a Chapter 7 discharge within eight years before filing your current Chapter 13 case.
The court or parties in interest can also move to convert your case to Chapter 7 for cause under Section 1307(c), including unreasonable delay, failure to pay fees, failure to file a timely plan, failure to make plan payments, denial of plan confirmation, or material default under a confirmed plan. Conversion to Chapter 7 eliminates your ability to cure arrears on secured debts and may result in loss of non-exempt property to liquidation.
Pre-Conversion Considerations
Before requesting or consenting to conversion, evaluate whether you pass the Chapter 7 means test. Above-median income debtors who fail the means test and filed Chapter 13 because Chapter 7 was unavailable will have the Chapter 7 case dismissed for abuse under Section 707(b). You should also consider whether you acquired assets post-petition that would be subject to liquidation in Chapter 7, whether your household income changed in ways that affect means test calculations, and whether non-exempt equity in property has increased since filing.
Common reasons to convert from Chapter 13 to Chapter 7 include job loss making plan payments impossible, decision to surrender secured property rather than cure arrears, and realization that priority tax debts or domestic support obligations make a feasible plan impossible. Conversion may allow a “fresh start” by discharging unsecured debts that would have taken years to pay under the Chapter 13 plan.
Pros and Cons of Chapter 13 Eligibility Rules
| Pros (Why These Rules Exist) | Cons (How Rules Harm Debtors) |
|---|---|
| Debt limits prevent high-debt individuals from avoiding Chapter 11’s creditor protections | Limits exclude middle-class debtors with modest mortgages in high-cost areas like New York and California where home values exceed thresholds |
| Regular income requirement ensures only debtors who can fund plans use Chapter 13 | Seasonal workers, commission-based earners, and gig economy workers struggle to prove income regularity despite consistent annual earnings |
| Feasibility test protects creditors from aspirational plans that will inevitably fail | Strict feasibility analysis denies relief to debtors with tight budgets who could complete plans with minor lifestyle adjustments |
| Entity restrictions channel corporate restructuring to Chapter 11 with transparency and creditor voting | Sole proprietors bear personal liability for business debts but get Chapter 13 relief while partnerships cannot restructure business debts in Chapter 13 |
| Discharge waiting periods prevent serial abuse and ensure debtors make good faith efforts before seeking repeated relief | Debtors who experience legitimate second financial crises within waiting periods have no restructuring option |
| Tax return requirements ensure priority tax debts are identified and paid | Debtors who fell behind on filing during financial crisis are denied relief despite owing minimal tax amounts |
| Bad faith dismissals prevent manipulation of automatic stay to delay foreclosures without intending reorganization | Subjective “totality of circumstances” test creates inconsistency where same facts yield different outcomes across judges |
Common Mistakes That Lead to Disqualification
Failing to Calculate Guaranty and Partnership Debts
Many debtors incorrectly assume that debts owed by their corporations or partnerships do not count toward personal Chapter 13 debt limits. When you personally guaranteed corporate debt or serve as a general partner with personal liability under state law, these obligations count as your individual debts for eligibility purposes. Failing to include guaranteed and partnership debts in your eligibility calculation leads to cases being dismissed post-filing when the trustee or creditors discover the omission.
Obtain copies of all corporate documents, partnership agreements, loan guarantees, and commercial leases before filing. Review each obligation to determine whether you have personal liability that counts toward debt limits. Consulting a bankruptcy attorney before filing prevents costly eligibility mistakes.
Reporting Only Net Business Income Without Proper Documentation
Self-employed debtors sometimes report artificially low “net income” by deducting personal expenses as business expenses or by claiming expenses without documentation. The trustee will scrutinize business expense deductions closely, and excessive or unsupported deductions lead to findings of bad faith. Use actual IRS Schedule C or Form 1120S figures from filed tax returns as your starting point for income calculations rather than creating new expense estimates.
Missing the 180-Day Credit Counseling Deadline
The credit counseling requirement demands completion within 180 days before filing, not after. Debtors who complete counseling 181 days before filing must repeat the course with an approved agency. The 180-day window is strictly enforced, and courts will dismiss cases where the certificate shows completion outside the window even if the error was inadvertent.
Schedule credit counseling immediately when you begin considering bankruptcy. Completing it early in your decision process ensures the certificate remains valid if circumstances force you to file quickly to stop foreclosure or garnishment.
Proposing Plans That Fail the “New Value” Test
Some debtors propose plans that pay unsecured creditors nothing while the debtor retains significant non-exempt property. The best interest test requires that unsecured creditors receive value equal to what they would receive in Chapter 7 liquidation. When you have $30,000 in non-exempt equity in assets, unsecured creditors must receive at least $30,000 through the plan (minus reasonable costs of sale and administration). Failing to account for non-exempt asset value when calculating required plan payments leads to objections and denial of confirmation.
Attempting to Modify Mortgage on Principal Residence
Section 1322(b)(2) prohibits modification of claims secured only by a security interest in real property that is the debtor’s principal residence. You cannot reduce the principal balance on your primary home mortgage through Chapter 13, even when you owe more than the home’s value. Debtors who propose plans attempting to cram down principal residence mortgages face immediate objections from mortgage lenders and denial of confirmation.
You can cure mortgage arrears through your plan and stop foreclosure, but the underlying mortgage terms remain unchanged. Investment properties, second homes, and business real estate do not receive this protection, allowing cramdown to fair market value.
Post-Petition Changes That Disqualify You
Windfall Income or Inheritance Within 180 Days
Section 541(a)(5) brings certain property acquired within 180 days after filing into the bankruptcy estate. This includes inheritances, life insurance proceeds, and certain divorce settlements. When you inherit $100,000 sixty days after filing Chapter 13, that inheritance becomes property of the estate. You must amend your schedules to disclose the inheritance and modify your plan to account for the additional asset.
The 180-day rule affects Chapter 13 debtors differently than Chapter 7 debtors. In Chapter 13, you typically retain possession of inherited property, but the inheritance’s value may increase required plan payments to unsecured creditors to satisfy the best interest test. Failing to disclose inheritances or other windfall income received within 180 days constitutes concealment of assets and provides grounds for dismissal with prejudice.
Loss of Income Making Plan Payments Impossible
Job loss, disability, divorce, or other life changes during your three-to-five-year plan can eliminate your ability to make required payments. Section 1329 allows plan modification after confirmation to reduce payments when circumstances change. The debtor, trustee, or unsecured creditors may request modification, but modified plans must still meet all confirmation requirements including feasibility and best interest tests.
When modification cannot create a feasible plan, you may request a “hardship discharge” under Section 1328(b). Hardship discharge is available only if: (1) your failure to complete payments is due to circumstances beyond your control and through no fault of your own, (2) creditors received at least as much as they would have in Chapter 7 liquidation, and (3) plan modification is not possible. The list of non-dischargeable debts under hardship discharge matches Chapter 7’s more restrictive list rather than Chapter 13’s broader discharge.
Incurring Post-Petition Debt Without Court Approval
Many districts include plan provisions prohibiting debtors from incurring post-petition debt exceeding specified amounts (often $2,500 or $5,000) without court permission. Violating this restriction provides grounds for dismissal or denial of discharge. When you need to incur debt for emergency car repairs or medical treatment exceeding the plan threshold, file a motion requesting court permission before taking out the loan.
Necessary post-petition debts like ongoing mortgage payments, car payments, utility bills, and reasonable living expenses are permitted without court approval as these are expected ongoing obligations. The restriction targets new consumer debt like credit card charges, personal loans, or vehicle purchases that increase your debt burden during the plan period.
Jurisdiction-Specific Disqualification Factors
New York Eastern District vs. Southern District Differences
Chapter 13 filers in the Eastern District of New York (covering Brooklyn, Queens, Staten Island, Nassau County, and Suffolk County) face substantially different requirements than filers in the Southern District (covering Bronx, Manhattan, Westchester, and surrounding counties). Eastern District trustees require surrender of 100% of tax refunds annually with no automatic retention permitted. Debtors must file a motion and show extraordinary specific need to retain any portion of refunds, and motions are frequently denied.
Southern District filers automatically retain up to $1,500 in combined federal and state tax refunds each year of their plan. Amounts exceeding $1,500 must be paid to the trustee in addition to regular plan payments. This difference significantly affects plan feasibility calculations and the ability to handle unexpected expenses during the plan period.
The Eastern District’s median time from filing to closing was only 154 days in 2020, the lowest in the nation, suggesting high dismissal rates before confirmation. Vermont had the highest median at 1,967 days, indicating high plan completion rates with cases remaining open through full five-year plan periods.
Local Rule Variations
Local bankruptcy rules impose additional requirements beyond federal law. Some districts require specific plan form language, notice procedures, or motion formats that vary from standard federal rules. The Eastern District’s Chapter 13 plan form includes provisions requiring that post-petition payments on mortgages, vehicle loans, real estate taxes, income taxes, and domestic support obligations be made directly by the debtor unless the plan specifically provides otherwise.
Massachusetts, California, Connecticut, Arizona, and Rhode Island have the lowest plan confirmation rates at less than 50% of filed cases, according to research studying 2.2 million Chapter 13 filings. Local legal culture, trustee practices, and judicial philosophies create wide variation in Chapter 13 success rates across jurisdictions even though the underlying federal law remains uniform nationwide.
Voluntary Dismissal Rights and Limitations
Section 1307(b) grants you an absolute right to dismiss your Chapter 13 case at any time before conversion to another chapter. The court “shall dismiss” the case upon your request—the language is mandatory, not discretionary. This right to voluntary dismissal gives you control over whether to continue with Chapter 13 reorganization or abandon the case and pursue other debt resolution strategies.
Some courts previously limited the right to voluntary dismissal based on bad faith conduct, relying on Marrama v. Citizens Bank and the court’s equitable power under Section 105(a) to police abuse. The Ninth Circuit in Nichols v. Marana Stockyard rejected this bad faith exception, holding that Law v. Siegel‘s teaching—that courts cannot use equitable power to contradict express Code provisions—requires allowing voluntary dismissal even for debtors who committed fraud or abuse.
Timing and Procedural Requirements
You can request voluntary dismissal at any time before the case is converted to Chapter 7 or another chapter. Once conversion occurs, your absolute right to dismiss ends. If a creditor files a motion to convert for cause before you file a motion to dismiss, some courts hold that you forfeit your Section 1307(b) right when the conversion motion alleges fraud or bad faith. Other courts allow dismissal even when a pending conversion motion alleges fraud, creating a circuit split.
Section 1307(c) gives courts discretion to convert or dismiss your case for cause, including bad faith, unreasonable delay, or failure to make payments. If the court grants a conversion motion before you request voluntary dismissal, your absolute dismissal right evaporates. Strategic timing becomes critical when both conversion motions and voluntary dismissal are in play.
FAQs
Can I file Chapter 13 if I’m self-employed with fluctuating income?
Yes, self-employed individuals qualify if income is sufficiently stable and regular to fund plan payments even with seasonal variations.
Do student loans count toward the $526,700 unsecured debt limit?
Yes, student loan balances count as unsecured debt when calculating eligibility unless secured by collateral like home equity lines.
What happens if I exceed debt limits by a small amount?
The court will dismiss or convert your case; some jurisdictions allow paying creditors to reduce debt below limits before confirmation hearing.
Can my spouse’s income affect my Chapter 13 eligibility?
Yes, when filing jointly, both spouses’ debts count separately toward limits; household income determines plan payment amounts and plan length.
How long does the 180-day bar last after dismissal?
180 days from dismissal date if case dismissed for willful failure to comply with orders or after creditor sought stay relief.
Can I file Chapter 13 to stop foreclosure the day before sale?
Yes, automatic stay stops foreclosure upon filing, but courts scrutinize eleventh-hour filings for bad faith and serial filing abuse.
What if I miss one Chapter 13 plan payment?
Trustee may allow cure by making up payment; chronic missed payments lead to dismissal under Section 1307(c)(6).
Are there income limits for Chapter 13?
No maximum income exists, but income must be sufficient to fund feasible plan paying all priority debts.
Can corporations or LLCs file Chapter 13?
No, only individuals including sole proprietors can file; business entities must use Chapter 7 or 11.
Do medical bills count toward the unsecured debt limit?
Yes, medical debt is unsecured and counts toward the $526,700 limit unless secured by lien.
How many times can I file Chapter 13?
Unlimited times, but discharge waiting periods and serial filer automatic stay limitations restrict practical refiling ability.
What happens if I inherit money during Chapter 13?
Inheritance within 180 days after filing becomes estate property; you must amend schedules and may need plan modification.
Can I keep my car in Chapter 13?
Yes, if you pay secured creditor through plan and car equity fits exemptions or is paid to unsecured creditors.
Will Chapter 13 discharge tax debt?
Older income taxes meeting specific criteria may be discharged; recent taxes and trust fund taxes require full payment.
What is the success rate for Chapter 13 bankruptcy?
Approximately 49.3% of Chapter 13 cases successfully completed in 2024; success rates increase substantially with attorney representation.
Can I modify my plan after confirmation?
Yes, debtors, trustees, and unsecured creditors can request modification under Section 1329 for changed circumstances.
Are attorney fees paid through the Chapter 13 plan?
Yes, attorney fees are administrative expenses paid through plan with priority over unsecured creditors but after trustee fees.
Can I file Chapter 13 if I previously filed Chapter 7?
Yes, wait four years from Chapter 7 filing date before filing Chapter 13 to receive discharge.
What debts cannot be discharged in Chapter 13?
Student loans (except undue hardship), recent taxes, domestic support obligations, criminal restitution, and debts from fraud survive discharge.
Does filing Chapter 13 stop wage garnishment?
Yes, automatic stay immediately stops wage garnishment upon filing except for post-petition domestic support obligations.
Related reading
- What Are the Qualifications for Chapter 13 Bankruptcy? (w/Examples) + FAQs
- What Are the Qualifications for Chapter 7 Bankruptcy? (w/Examples) + FAQs
- What Bankruptcy Chapter Should I File? (w/Examples) + FAQs
- Are Chapter 13 Bankruptcies Public Record? (w/Examples) + FAQs
- Can Chapter 13 Be Discharged Early? (w/Examples) + FAQs
- Should I File Chapter 7 or 13? (w/Examples) + FAQs