What Are the Qualifiers to File a Chapter 13 Bankruptcy?
To file for bankruptcy under Chapter 13, the debtor must meet certain requirements. There are differences in the outcomes between a Chapter 7 and a Chapter 13 bankruptcy. Under Chapter 7, the debtor gets a discharge of particular debts in exchange for liquidating non-exempt property. As a result, the proceeds from the sale of non-exempt property are used to pay creditors. Filing bankruptcy under Chapter 13 grants a debtor the ability to retain their property. In addition, the debtor agrees to payback creditors via a repayment plan. The repayment plan transpires over the course of three to five years and must be approved by the bankruptcy court.
The U.S. Bankruptcy Code provides the following qualification requirements for individuals to be able to file a Chapter 13:
Cannot File as a Business Entity
Individuals as well as their spouses can file a Chapter 13 bankruptcy jointly. Business entities such as corporations and limited liability companies are not eligible to file a Chapter 13 bankruptcy. However, business entities may be eligible to file for bankruptcy under Chapter 11.
A business owner cannot file a Chapter 13 bankruptcy in the business name. There is an exception if the business owner is a sole proprietor or a partner in a partnership. In these cases, the business owner may include debts that they are personally liable for. Another exception includes commodity brokers and stockbrokers who are not eligible to file bankruptcy under Chapter 13.
Prior Bankruptcy Filing Disqualifiers
- Length of Time Since Last Filing
Debtors who filed a Chapter 13 bankruptcy within the last two years are not eligible to refile a Chapter 13. This also applies for debtors who filed a Chapter 7 bankruptcy within the last four years. As a result, debtors are not eligible for a Chapter 13 until the required time has passed since the prior bankruptcy filing.
- Previous Bankruptcy Case Dismissed Within Past 180 Days
Debtors cannot file a Chapter 13 or Chapter 7 if a previous petition was dismissed during the prior 180 days if:
The debtor failed to appear in court and/or willfully violated a court order.
The debtor asked the court to dismiss the case, after a creditor’s request that the court lift the automatic stay.
- Too High of Debt Amount to File Chapter 13 Bankruptcy
An additional Chapter 13 bankruptcy requirement includes a limit on the filer’s total debt amount. The debt amount cap for Chapter 13 bankruptcy filers is an amount less than $419,275.00 for unsecured debt. The debt amount cap for secured debt is an amount less than $1,257,850.00. Unsecured debt includes credit card and medical debt due to not being secured by property or collateral. This differs from secured debt where a creditor can get to the property securing the debt when payments are not made.
Satisfied the Credit Counseling Requirement
A debtor must satisfy the credit counseling requirement before filing a Chapter 13 bankruptcy petition. The debtor must file a certificate of proof with the bankruptcy court at least 180 days before filing the petition.
A debt management plan completed by a credit counseling agency, must submitted to the bankruptcy court. The debtor must include the debt management plan certificate with the initial paperwork filing. In addition, the plan must be provided to the court within 15 days after filing the bankruptcy petition.
Income Tax Returns Must Be Filed in Order to File Chapter 13 Bankruptcy
Filers must confirm filing federal income tax for the four years prior to filing their Chapter 13 bankruptcy petition. Filers must provide the bankruptcy trustee with IRS tax return transcripts at least seven days before the initial meeting of creditors.
Proposed Repayment Plan Must Satisfy All Required Debts
Bankruptcy law under Chapter 13, proscribes a strict requirement that certain debts must be repaid in full. The debts under this requirement include:
Priority Debt: which includes alimony, child support and taxes that are non-dischargeable.
Secured Debt: which includes mortgages and auto loans that required to remain current during the repayment plan period.
Additional Secured Debt: which includes tax and judicial liens and must be fully paid before the end of the repayment period.
Repayment of Certain Debt for Unsecured Creditors
A debtor is allowed to keep non-exempt property under a Chapter 13 bankruptcy. As a result, the debtor is obligated to pay unsecured creditors an amount equal to the value of the non-exempt property. The repayment to unsecured creditors must be completed during the term of the repayment plan. Examples of non-exempt property include, appliances, household furniture, jewelry, and a specified amount of equity in a home or vehicles.
No Limits on Income
Unlike a Chapter 7 bankruptcy, the filer’s level of income is not factored into a Chapter 13 bankruptcy. In addition, there is no means test requirement. In a Chapter 13 bankruptcy income is only an issue if it is insufficient to pay debts in the repayment plan.
Sufficient Income to Pay Debt to File Chapter 13 Bankruptcy
After taking the allowable deductions for expenses, the debtor’s income must be sufficient to meet all the debt obligations. Income from a debtor’s spouse may be included if the spouse has not filed jointly in the bankruptcy petition.
To qualify for Chapter 13 bankruptcy, the debtor’s income must be able to meet certain financial obligations. Specifically, the debtor’s income must be able to cover expenses, mandatory payments to priority, secured and unsecured creditors. In addition, the debtor is required to pay a commission to the bankruptcy trustee. This commission is based on a percentage of the total payments made during the repayment plan period.