Chapter 13 for People Who Make Too Much for Chapter 7

What Happens If You Make Too Much for Chapter 7?

Chapter 7 bankruptcy has income requirements. The court compares your current monthly income and household income to the median family income in Tennessee. If your income is above the median income, you must complete the means test.

The means test looks at your monthly expenses, secured debt payments, tax debts, child support payments, and other allowable deductions. If, after those deductions, you still have significant disposable income, the court may determine you can pay creditors. That can disqualify you from Chapter 7.

This is where Chapter 13 bankruptcy comes in. Instead of liquidating non-exempt property like in Chapter 7, Chapter 13 creates a structured debt-repayment plan. It’s often called the wage earner’s plan because it’s designed for people with regular income.

At The Pope Firm, we regularly help Tennessee clients who were told they have too much income for Chapter 7 understand how Chapter 13 can still provide meaningful bankruptcy protection.

What Is Chapter 13 Bankruptcy?

Chapter 13 is a bankruptcy chapter under the Bankruptcy Code that allows you to reorganize your debts over a repayment period of three to five years.

Instead of wiping out unsecured debt immediately, you propose a repayment plan. The bankruptcy court must review it, and once the court approves it, you begin making plan payments. Those monthly payments are based on your disposable income, secured debts like a car loan or mortgage, and priority obligations such as child support and certain taxes.

During this time, unsecured creditors, including those owed credit card debt, medical bills, and personal loans, receive payments according to the debt repayment plan. At the end of the repayment period, the remaining eligible unsecured debt is discharged. So even if you make too much income for Chapter 7, Chapter 13 bankruptcy can still help you pay debts in a manageable way and protect your financial future.

Why Would You File Chapter 13 Instead of Chapter 7?

For some people, it’s not just about income limits. Chapter 13 offers benefits that Chapter 7 cannot. For example, if you are behind on mortgage payments and facing foreclosure proceedings, Chapter 13 can stop the foreclosure through the automatic stay and allow you to catch up over time.

The same goes for car payments. If you’ve fallen behind on a secured loan, Chapter 13 allows you to spread those arrears across the repayment period while keeping the vehicle. It can also help manage tax debts, including certain taxes that cannot be discharged in Chapter 7. Domestic support obligations, including child support, must be paid, but Chapter 13 can provide structure.

There are also situations involving lien stripping, where junior liens on certain properties may be treated as unsecured debt under specific conditions. In short, Chapter 13 is not a fallback option. For many wage earners with steady income, it is the smarter strategic move.