As a result of the current state of the real estate market in New York and elsewhere, we receive many inquiries regarding Chapter 13 bankruptcy from people wondering if they can use Chapter 13 to save a home or investment property. The answer is that Chapter 13 can be used to save a home or investment property, but has its limitations.
Eligibility Requirements for Chapter 13 Bankruptcy:
Secured Debt Limits. A debt is secured if the debt is collateralized by a lien or mortgage. As of the date of this posting, to be eligible for Chapter 13 a debtor can’t have more than $1,010,650 in total secured debt. This means that if a debtor either has a home or apartment with greater than $1,010,650 in mortgages on it, or has more than one property – such as a primary home subject to a mortgage and 2nd investment property subject to a mortgage – with total debt on all properties greater than $1,010,650, then Chapter 13 is not an option. Car loans (but not car leases) also get added in to the total when calculating the secured debt limit.
Unsecured Debt Limits. To be eligible for Chapter 13, as of the date of this posting a debtor cannot have unsecured debt greater than $336,900. A debt is unsecured when it is not secured by a mortgage or lien on property. Typically credit card debt and student loans are unsecured. Tax debt is unsecured unless the taxing authority has filed a tax lien or warrant.
Regular Income. To be eligible for Chapter 13 a debtor must have “regular income”. This term is not defined in the Bankruptcy Code, but is generally understood to mean a steady source of income, such as from a job on payroll (receiving an IRS Form W-2 at end of year for wage reporting), from a job as independent contractor (receiving IRS Form 1099 income reporting), from self-employment, or from retirement income (such as a pension and/or social security). In addition, if a debtor does not have sufficient income himself/herself to fund a Chapter 13 plan, it is possible to obtain confirmation of a plan if another person or persons with regular income agree to make regular contributions to plan payments (such as a spouse, family member, domestic partners, boyfriend/girlfriend, etc.).