Who Can File for Chapter 13 Bankruptcy?
A debtor must meet Chapter 13 requirements to file for bankruptcy under this chapter. Unlike a Chapter 7 bankruptcy, which allows the debtor to discharge some debts in exchange for the sale of nonexempt property to pay creditors, Chapter 13 allows the debtor to keep their property and repay creditors in a three- or five-year court-approved repayment plan.
Requirements for Chapter 13 Bankruptcy
According to Chapter 13 requirements under the U.S. Bankruptcy Code, you must meet the following criteria to qualify.
You Are Not a Business Entity
Only individuals and those filing jointly as spouses can file for Chapter 13 bankruptcy. For instance, businesses that are corporations and limited liability companies (LLC) are ineligible for Chapter 13 and must instead file for Chapter 11 bankruptcy.
While a business owner can't file in the name of the business, if you own the business as a sole proprietor or with a partner, you can file in your name for the debts you are personally liable for. Stockbrokers and commodity brokers, however, are ineligible for Chapter 13.
You Are Not Barred by a Prior Bankruptcy
If you discharged debt in a Chapter 13 bankruptcy within the last two years or in a Chapter 7 bankruptcy within the last four years, you are ineligible for a Chapter 13 discharge until the requisite time has elapsed.
A Previous Bankruptcy Case Was Not Dismissed Within the Previous 180 Days
A debtor cannot file for Chapter 13 or Chapter 7 if a prior bankruptcy petition was dismissed during the preceding 180 days for either of the following reasons:
- The debtor willfully violated a court order or failed to appear before the court
- The debtor requested that the court dismiss the case after a creditor asked the court to lift an automatic stay
You Have Fulfilled the Credit Counseling Requirement
A Chapter 13 debtor must file with the bankruptcy court a certificate of proof showing an approved credit counseling agency provided debt counseling at least 180 days prior to the Chapter 13 filing.
If the credit counseling agency created a debt management plan, the debtor must provide a copy to the court. The debtor must also file the certificate with the initial paperwork or must provide it within 15 days after filing for bankruptcy.
Your Debts Are Not Too High
Chapter 13 requirements impose a limit on the amount of a filer's debt. Chapter 13 is available to individual debtors with less than $419,275 in unsecured debt (debts that are not secured by property, such as credit card debt and medical bills) and less than $1,257,850 in secured debt (debts in which a creditor can take the property securing the debt if it is not paid). Debt limits are adjusted every three years for inflation.
You Have Filed Your Income Tax Returns
To meet Chapter 13 requirements, you must provide proof of filing state and federal income tax returns for the previous four years. At least seven days before the first meeting of creditors, you must provide the trustee with a copy or a transcript of the most recent federal tax return filed with the IRS.
Your Proposed Plan Repays All Required Debts
Under Chapter 13, bankruptcy law requires the repayment of some debts in full. Debts in this category include:
- Priority debts: Unsecured debts, such as child support, alimony or support payments, and nondischargeable taxes.
- Secured debts that survive the repayment plan: Secured debts, such as a mortgage or a vehicle loan, must remain current during the repayment plan.
- Other secured debts: Secured debts, like judicial and tax liens, must be paid in full during the repayment time.
You Can Repay a Certain Amount to Unsecured Creditors
Nonpriority, unsecured creditors may also be entitled to repayment. Because a debtor may keep nonexempt property under Chapter 13 bankruptcy, a debtor must repay nonpriority, unsecured creditors at least the amount equal in value to their nonexempt property over the life of the repayment plan. Nonexempt property typically includes household appliances and furniture, inexpensive jewelry, and a certain amount of equity in a home or motor vehicle.
No Income Limits
Unlike Chapter 7 bankruptcy, there is no means test to see whether your income is too high to file for a Chapter 13 bankruptcy. Rather, the courts will see if your income is too low to repay the debt (more on this below).
You Have Sufficient Income to Pay Debt
A debtor must have enough income, after deducting allowable expenses, for all debt obligations. A debtor may include income from a working spouse even if the spouse has not filed jointly for bankruptcy, wages and salary, self-employment income, Social Security benefits, and unemployment benefits.
To qualify for Chapter 13, the debtor must have enough income for expenses, for mandatory payments to priority and unsecured creditors, and for payments to unsecured creditors in an amount at least equal in value to the debtor's nonexempt property. The debtor must also pay the trustee a commission based on a percentage of all payments made in the plan.
Can You File for Chapter 13? Find Out With the Help of an Attorney
If you're worried about whether bankruptcy is the right decision for you, a personalized assessment of your goals and position are critical. Harassing collection attempts and strained finances can lead to rash decisions and additional confusion. Contact a bankruptcy attorney today and get a handle on your situation.