VA Chapter 13 Bankruptcy Guidelines

VA Chapter 13 Bankruptcy Guidelines Explained

In this guide, we will cover VA Chapter 13 bankruptcy guidelines. Per the guidelines, borrowers can become eligible for a VA loan one year after filing Chapter 13 bankruptcy. Borrowers need to have made 12 timely payments to the bankruptcy trustee. You cannot have been late with your payment to the bankruptcy trustee in the past 12 months. However, borrowers who are filing bankruptcy during the Chapter 13 repayment plan and need to qualify for a mortgage need to do it under VA manual underwriting guidelines, says Dale Elenteny:

FHA and VA loans are the only two mortgage loan programs that allow manual underwriting. VA and FHA manual underwriting involves a human underwriter reviewing a loan application instead of relying on an automated system. This approach is typically used when an automated system cannot approve a loan due to complex financial situations or specific circumstances like recent bankruptcy or a high debt-to-income ratio.

Filing for bankruptcy may already be complicated. Still, given certain unique situations, it can be even worse for veterans and active-duty service members. One way to help people reorganize their debt and retain some of their property is through Chapter 13 bankruptcy. This post will cover some of the Chapter 13 specifics for veterans, outlining eligibility requirements, the filing procedure, and its impact on VA benefits.  In the following paragraphs, we will cover VA Chapter 13 bankruptcy guidelines.

What is Chapter 13 Bankruptcy?

As with other types of bankruptcy, Chapter 13 is a form of “Wage Earner’s Plan.” It is also referred to because it caters to individuals with a predictable monthly income. It allows them to form a strategy to pay back all or part of the debt within two years, up to a maximum of five years. This type of bankruptcy is ideal for those who wish to keep certain assets, like a home or car, while managing their debt.

Eligibility Requirements for Chapter 13 Bankruptcy

To file Chapter 13 bankruptcy, the debtor must fulfill some conditions, such as the following:

• A Steady Income Source: Qualifying incomes may be salary, wages, net income from self-employment, and rent from property. All of these must be consistent so that payment can be relied on.
• Debt Limits: There are no income requirements; however, there are restrictions on unsecured and secured debt. As of 2023, you cannot have more than $465,275 in unsecured debt and $1,395,875 in secured debt.
• Credit Counseling: You must undergo credit counseling from an approved agency before 180 days of filing. This is meant to help you consider alternatives to bankruptcy.

VA Chapter 13 Bankruptcy Guidelines Filing Process

Step 1: VA Chapter 13 Bankruptcy Guidelines—Collect Required Documents

Before filing, collect the following documents:

• Income documentation (pay stubs and/or tax returns).
• List of assets and liabilities.
• Recurring monthly expenses.
• Bankruptcy documents (if applicable).

Step 2: Civically Bound Bankruptcy Documents

Prepare the following forms:

• Voluntary Petition for Individuals Filing for Bankruptcy.
• Schedules of assets and liabilities.
• Statement of Financial Affairs.

VA Chapter 13 Bankruptcy Guidelines—Step3: File with the Court

You’ll need to file your completed forms with the assigned bankruptcy court. This step typically includes paying a filing fee. However, fee waivers may be available for low-income filers.

Step 4: VA Chapter 13 Bankruptcy Guidelines: Attend the Creditor Meeting

You will call for a meeting of creditors a few days after filing (341 meeting). You will now respond to questions from the bankruptcy trustee and creditors.

Step 5: VA Chapter 13 Bankruptcy Guidelines-—Check Your Repayment Framework

For your specific case, you will design a repayment plan detailing how you intend to repay your debt over three to five years. The court must accept this plan.

• VA Benefits Considerations: Chapter 13 bankruptcy filing does not directly affect your VA benefits.
• However, some critical points must be noted:
• Income Factors: Your VA disability benefits might be classified as income during your repayment plan calculation.
• This may impact how much you owe the creditors.
• Asset Protection: VA benefits are typically shielded from creditors, which implies your VA disability payments, service-connected disability compensation, and other benefits are.
• Hence, these items are protected during bankruptcy proceedings—they are beyond the reach of creditors.

VA Chapter 13 Bankruptcy Guidelines: Pros and Cons of Chapter 13 Bankruptcy for Veterans

Pros

• Asset Retention: Debtors can retain their homes and vehicles while paying off debt.
• Automatic Stay: Once the filing is completed, foreclosure, repossession, and wage garnishment activities are halted immediately.
• Debt Sponsorship: Veterans will receive a no-sponsorship framework for remaining debts defined within the sponsorship ceiling after completing the repayment plan.

Cons

• Debt Responsibility: One of the main cons of Chapter 13 is also the most “positive” feature.
• In this case, you owe your debt responsibility to a repayment plan.
• Without ever-shifting-favorable changes to your finances, this can become a thorn.
• Fiscal Footprint: Chapter 13 bankruptcy will remain on your credit report for seven years.
• This will substantially limit your future credit opportunities and shackle other facets of your life.
• Charges and Expenses: Some costs, such as court and lawyer fees, are linked with filing.

Veterans and active-duty service members can use Chapter 13 bankruptcy to reclaim their finances. Knowing the eligibility requirements, process, and impact on VA benefits. An attorney specializing in veterans’ issues might help streamline the filing process. The right plan and professional guidance can help reclaim financial peace of mind and stability.

The section below covers the most common issues people have regarding VA Chapter 13 Bankruptcy Guidelines to ensure we are on the right track:

VA Chapter 13 Bankruptcy Guidelines: Most Frequently Asked Questions

What is Chapter 13 Bankruptcy for Veterans?

Veterans can also declare bankruptcy under Chapter 13 as civilians, which allows them to consolidate their debts into a repayment plan lasting between 3 and 5 years. As each veteran reintegrates into civilian life through different means, this option is best suited for individuals who have a consistent income but are overwhelmed with debt, including mortgage arrears or other secured debts.

VA Chapter 13 Bankruptcy Guidelines: Can Veterans Keep Their VA Benefits in Chapter 13 Bankruptcy?

Yes. Most VA benefits, such as disability compensation and pensions, are secured in bankruptcy and not subject to claims by creditors. There is a caveat—you must report these benefits when filing, since they help evaluate your repayment capacity.

VA Chapter 13 Bankruptcy Guidelines: How Does Chapter 13 Affect a VA Loan or Mortgage?

Chapter 13 can stop the foreclosure of a home with a VA loan if it’s in progress. Using a court-sanctioned repayment plan, you can keep the mortgage payments current. You must keep making the current mortgage payments while the case remains open.

Can I Qualify for a New VA Loan After Filing Chapter 13?

Certainly, the VA usually approves a new loan 1 to 2 years after filing Chapter 13, as long as the borrower has been making timely payments and has received court approval. Most lenders will also require manual underwriting.

Does Chapter 13 Eliminate All Debts?

No. Chapter 13 reorganizes debt and may discharge unsecured debts, like credit cards or medical bills, that aren’t paid off through the plan. Secured debts, like car loans and mortgages, are paid back under the plan’s terms.

VA Chapter 13 Bankruptcy Guidelines: Will Filing for Chapter 13 Affect My Security Clearance or Military Career?

It depends. While bankruptcy does not simultaneously impact your clearance, lack of responsibility or nondisclosure might. Talking to your commanding officer or legal counsel is useful since the effect tends to differ depending on the branch and position.

How Long Does Chapter 13 Bankruptcy Stay on My Credit Report?

A Chapter 13 bankruptcy stays on your credit report for 7 years after filing. Many people, however, start rebuilding credit within one year just by making payments under the plan.

Can I Add VA Overpayments or Benefit Debts in Chapter 13?

Yes. Debts owed to the Department of Veterans Affairs, including benefit overpayments, can be included in a Chapter 13 plan. Depending on the case specifics, these debts may be discharged at the end of the repayment term.

Is There a Limit to the Amount of Debt Someone Can Have to File Chapter 13?

Yes. As of April 2025, the combined total of secured and unsecured debts must be less than $2.75 million to qualify for Chapter 13. This limit may be adjusted periodically.

Do I Need to Hire an Attorney to File for Chapter 13 Bankruptcy?

While it’s not legally required, hiring a bankruptcy attorney is strongly recommended, especially in complex Chapter 13 cases that require court-approved repayment plans.