If you are juggling past-due mortgage notices and mounting credit card debt, Chapter 13 bankruptcy in Arkansas allows you to consolidate your financial obligations into a single monthly repayment plan. Over three to five years, this legal framework immediately stops foreclosure actions and creditor harassment, which can give you a structured path to reorganize your finances while keeping your home and vehicles.
What Is Chapter 13 Bankruptcy and How Is It Different from Chapter 7?
Under the U.S. Bankruptcy Code, Chapter 13 is often referred to as a wage earner’s plan because it is designed specifically for individuals with a regular source of income. Rather than wiping out qualifying debts immediately, you establish an Arkansas Chapter 13 repayment plan that reorganizes your financial obligations, with installments to creditors over three to five years.
Asset Preservation vs. Liquidation
The most significant difference between Chapter 7 and Chapter 13 lies in asset preservation. In a Chapter 7 filing, a court-appointed trustee may liquidate your non-exempt assets to pay your creditors.
Conversely, Chapter 13 allows you to keep all of your property (including non-exempt assets) provided you successfully complete your court-approved payment plan. This protection is incredibly beneficial if you have significant equity in a house or own vehicles outright and do not want to lose them to liquidation.
Debt Repayment Focus
Chapter 7 is a quick process focused on immediate discharge, typically lasting a few months. It is designed for individuals who have very little disposable income.
Chapter 13, on the other hand, is a longer commitment where you pay back a portion (or all) of your debts depending on your disposable income. Unsecured creditors, like credit card companies or medical providers, may only receive a fraction of what they are owed. By committing to this reorganization, you maintain control over your assets while fulfilling your legal obligations.
Who Qualifies for Chapter 13 Bankruptcy in Arkansas?
Filing for bankruptcy protection requires meeting specific statutory criteria. To file Chapter 13 in Arkansas, you must be an individual or a married couple; corporations and limited liability companies are not eligible to file under this chapter.
Income Requirements
You must have a stable, regular income to fund your Chapter 13 bankruptcy payment in Arkansas, though this income is not strictly limited to traditional wages from an employer. The court will consider self-employment earnings, pensions, Social Security benefits, alimony, or even contributions from family members, as long as the income is consistent and sufficient to cover your living expenses and plan payments.
Statutory Debt Limits
The bankruptcy code establishes strict debt ceilings for Chapter 13 eligibility, which are periodically adjusted for inflation to reflect current economic conditions.
For cases filed after April 1, 2025, your unsecured debts must be under $526,700, and your secured debts must not exceed $1,580,125.
Unsecured debt includes credit cards, medical bills, and personal loans. Secured debt covers mortgages, vehicle loans, and any other obligation tied to physical collateral. If your total debt load exceeds these established thresholds, you will not qualify for a Chapter 13 reorganization and must explore alternative legal options, such as filing for Chapter 11 bankruptcy.
Tax Filing Prerequisites
Before a bankruptcy court will confirm your plan, you must provide documented proof that you have filed your state and federal income tax returns for the four years preceding your bankruptcy petition. Additionally, you are legally required to complete an approved credit counseling course within 180 days before officially filing your paperwork; the completion of this course tells the court you fully understand your financial position and the commitment required to complete a multi-year repayment schedule.
What Is the Arkansas Bankruptcy Means Test?
The Arkansas bankruptcy means test is a mandatory financial calculation used primarily to determine eligibility for Chapter 7, but it also plays a critical role in Chapter 13 cases. In a Chapter 13 scenario, the means test helps calculate your disposable income and dictates the required length of your repayment plan.
State Median Income Calculations
The court compares your average monthly income over the six months prior to filing against the state’s median income for a household of your identical size. For cases filed between April 1, 2026, and July 14, 2026, the median family income for a single earner in Arkansas is $58,421. For a three-person household, the median is $82,329.
If your household size increases, the median threshold scales accordingly. This “six-month lookback” period prevents temporary income spikes from unfairly disqualifying you from a favorable payment structure.
Determining Plan Length
If your household income is below the state median, your plan will generally last three years, unless the court approves a longer period “for cause.”
If your income is above the Arkansas median, however, the law requires a mandatory commitment period of five years. This calculation helps ensure that your creditors receive a fair amount based on your actual, documented ability to pay while allowing you enough capital to afford your basic living necessities.
How Does the Arkansas Chapter 13 Repayment Plan Work?
The centerpiece of this bankruptcy chapter is the Arkansas Chapter 13 repayment plan: Under this framework, you will work closely with a Northwest Arkansas bankruptcy attorney to draft a comprehensive plan detailing exactly how you will pay off your debts to the bankruptcy trustee, who then distributes those funds directly to your creditors.
Classifying Your Debts
Your debts are categorized into three distinct classes, which determine how they are prioritized and paid under the legal plan:
- Priority Debts: These include domestic support obligations (like child support and alimony) and most recent tax debts. Priority claims must be paid in full through your plan.
- Secured Debts: If you wish to retain the collateral backing a debt—such as your family home or a commuter vehicle—your plan must pay the creditor the value of the collateral or cure any arrears. You will continue to make your regular ongoing payments while systematically paying off the past-due balance through the plan.
- Unsecured Debts: Medical bills, personal loans, and credit card balances fall into this category. You are only required to pay unsecured creditors an amount equal to your disposable income over the life of the plan. Often, this means paying a tiny fraction of what you actually owe.
Once your Chapter 13 bankruptcy payment plan in Arkansas is successfully completed, any remaining eligible unsecured balances are permanently discharged, leaving you debt-free from those specific obligations.
Can Chapter 13 Help You Stop Foreclosure and Save Your Home?
Yes. One of the most powerful and immediate features of filing for bankruptcy protection is the implementation of the automatic stay. As soon as you file your legal petition, federal law enacts an automatic injunction that halts lawsuits, foreclosures, wage garnishments, and all other collection activity immediately.
This legal barrier completely prevents mortgage lenders from proceeding with a foreclosure sale or auction: You can consolidate your past-due mortgage payments (often called arrears) and spread them out over your three- to five-year plan. As long as you maintain your regular, ongoing mortgage payments while making your court-approved plan payments, your lender cannot legally foreclose, allowing you to catch up on your terms and keep your property.
An Arkansas Bankruptcy Lawyer at Wilmoth Law Firm Can Help You File Chapter 13 Successfully
A skilled Arkansas bankruptcy lawyer at Wilmoth Law Firm can help you properly value your personal assets, categorize your diverse debts, and propose a viable plan. Call 479-443-8080 or fill out our online contact form to schedule a free consultation. We are located in Fayetteville, Arkansas.