Who Can File for Chapter 13 Bankruptcy?

For a Chapter 7 bankruptcy, debtors must pass a means test and can only file if their incomes are below a certain amount. Corporate entities cannot file Chapter 13 bankruptcies. They must file Chapter 11 bankruptcy, a type of corporate restructuring that leaves business operations intact while the company and trustees work out the debts. A debtor must meet Chapter 13 requirements to file for bankruptcy under this chapter. If the debtor cannot meet all requirements, the judge may require them to file a Chapter 7 instead.

Requirements for Chapter 13 Bankruptcy

Debtors must meet all the eligibility requirements of the U.S. Bankruptcy Code to file Chapter 13 bankruptcies and make a monthly payment plan. The judge must approve the repayment plan and appoint a bankruptcy trustee before the process is complete.

You Must Be an Individual

Only individuals and those filing jointly as spouses can file for Chapter 13 bankruptcy. Corporations and limited liability companies (LLC) are ineligible for Chapter 13. Business owners can’t file in the name of the business, but sole proprietors and members of partnerships can file bankruptcy for their personal debts. Stockbrokers and commodity brokers are ineligible for Chapter 13.

You Have No Recent Bankruptcies

You cannot file a Chapter 13 if you filed a Chapter 13 bankruptcy within the last two years or a Chapter 7 within the last four years.

You Have No Recent Bankruptcy Dismissals

A debtor cannot file any bankruptcy petition for at least 180 days after a previous dismissal if the the reason for the dismissal was:

• A willful violation of a court order or failure 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

If you’re uncertain of your status, consider speaking with a bankruptcy attorney for legal advice.

You Have Fulfilled the Credit Counseling Requirement

A Chapter 13 debtor must take a court-approved credit counseling course at least 180 days before filing a Chapter 13. You will receive a certificate from the course proving you completed the class. The credit counseling agency may help you create your debt management plan. You must include both documents with your bankruptcy filing or submit them within 15 days after your initial filing.

Your Debts Are Under the Federal Maximum

Chapter 13 requirements impose a limit on the amount of a filer’s debt. Courts set maximum levels for both unsecured and secured debts. Unsecured debts are debts that are not secured by property, such as credit card debt and medical bills. Secured debts are debts in which a creditor can take the property securing the debt if it is not paid. Bankruptcy courts adjust the debt limits 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. You are required to give the bankruptcy trustee a copy of your most recent federal tax returns at least seven days before the first meeting of creditors.

You Have Enough Income To Cover Your Payment Plan

The purpose of a Chapter 13 payment plan is to let you pay off your debts while having enough to keep your property and pay your bills. The court and bankruptcy trustee will review your plan and your disposable income to ensure you’ll have enough money to survive. Your declared regular income can include:

• Spouse’s income, whether the spouse is filing joint bankruptcy or not
• Wages or salary
• Self-employment income
• Social Security benefits
• Unemployment benefits

Your income must cover your living expenses and mandatory payments to creditors. There must be enough coming in to equal to your nonexempt property. The trustee also receives a commission based on a percentage of the plan payments.

Your Repayment Plan Covers Required Payments

The repayment plan means you must continue making regular monthly payments for priority and secured debts. If you cannot keep your monthly payments current, the trustee must consider the liquidation or repossession of your property. Required payments include:

• Priority debts: These include child support, alimony or spousal support payments, and non-dischargeable tax debt
• Secured debts: These can be mortgage payments, car loans, tax liens, and other similar types of debt
• Unsecured creditors:  This category includes personal loans and similar unsecured loans which may be entitled to repayment

The court determines these payments at the creditors meetings. Creditors may claim repayment up to the value of your nonexempt property, which the trustee would otherwise sell to pay off your creditors.

Get Legal Advice From a Bankruptcy Attorney

A Chapter 13 bankruptcy only applies to dischargeable debt. Student loans, debts with co-signers, and some other debts are not dischargeable under Chapter 13.

As you’ve seen, bankruptcy law can be confusing and frustrating. Each state has unique bankruptcy laws and exemptions. Before making any decision about bankruptcy, contact a bankruptcy attorney today and get help with your situation.