Chapter 13 Eligibility

Filing for Chapter 13 bankruptcy is not an option for businesses and is purely for individuals. However, if an individual is a sole-proprietor of a business they can file Chapter 13 and include the debts incurred by the business, as long as they meet the other requirements to file bankruptcy.

There are limits on the amount of secured and unsecured debts that an individual can have in order to qualify for Chapter 13 bankruptcy. These are $336,900 for unsecured debts, and $1,010,650 for secured debts. Further, the individual must also have a regular income but this does not necessarily mean that the income must be at the same level every month, or even that it must be monthly (it could also be, for instance, weekly, quarterly, annually or seasonally).

Eligible Income

Eligible income can come from a variety of sources including pension payments, commission, unemployment benefit, child support or alimony and the proceeds of sales of property. A portion of this income must be disposable: in other words, after the cost of living is deducted, there must be some surplus left over. This is because for either three or five years the debtor will be making payments to the court, which will then be distributed to creditors. It is important to note that under chapter 13 bankruptcy, debtors will be required to pay back some debts in full, as otherwise the judge will not confirm the plan.

Credit Counseling

Prior to filing Chapter 13 an individual must have received credit counseling from an agency. This counseling must have been undertaken within 180 days of the filing date. The counseling must be provided by a government approved organization and covers issues such as how to manage money, creating a budget, how to control debts and other matters. The only exception to the requirement to undertake counseling is if in an emergency the U.S. trustee concedes that the service is not available for the individual at the time.

Prior Bankruptcies

In order for a debtor to be eligible for a discharge under Chapter 13, they must not have either a) within the last two years received a discharge under a previous Chapter 13 case or b) within the last four years received a discharge in a Chapter 7, 11 or 12 case.

Eligible Individuals

In order to find out whether you (and your spouse, if applicable) are eligible to file under Chapter 13 a bankruptcy attorney will consider your tax filings, income, secured and unsecured debts. Your attorney will also be able to advise you whether Chapter 13 will be likely to be the right choice for you, whether your plan will be for three or five years, and the typical approach that your local bankruptcy court takes with Chapter 13 cases. To obtain advice about your circumstances, contact a bankruptcy attorney today.

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