When you meet with a chapter 13 bankruptcy attorney, you may decide that a Chapter 13 bankruptcy will work best for your situation. But your bankruptcy lawyer must also make sure that you meet the “eligibility requirements” to be maintain a valid Chapter 13 case. Most consumers will probably qualify to file Chapter 13, assuming they enough income to fund their Chapter 13 Plan, but there are some specific limitations that could apply to you.
Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief. This includes spouses filing jointly. But corporations and limited liability companies are not eligible to file under Chapter 13. And stockbrokers or commodity brokers are also not eligible. If you own business that is not eligible to file, you could still file in your name for the debts that you are legally obligated to pay.
Chapter 13 also has debt limits that your bankruptcy lawyer must deal with. You will be eligible to file Chapter 13 so long as your unsecured debts are less than $383,175 and secured debts are less than $1,149,525. This limitation is contained in the Bankruptcy Code in § 109(e). These amounts are adjusted periodically (every 3 years in April) to reflect changes in the consumer price index. The amounts given here were last adjusted on April 1, 2013. Businesses that aren’t eligible for Chapter 13, or individuals with too much debt, may still file for relief under Chapter 11.
Besides the debt limits, it’s possible that a prior bankruptcy filing may prevent you from filing a Chapter 13 case; or a prior bankruptcy may not prevent your Chapter 13 filing, but it may prevent you from getting a Chapter 13 discharge. Here are the basic rules:
- An individual cannot file under chapter 13 or any other chapter if, during the preceding 6 months (180 days), a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court.
- The same limitation (180 days) applies if your prior case was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
- Other time limits: Although you may file under Chapter 13 and proceed with a Chapter 13 Plan, you may not receive a “discharge” in Chapter 13 if you discharged debt in a Chapter 13 bankruptcy within the last 2 years or in a Chapter 7 bankruptcy within the last 4 years.
Despite this last limitation (no discharge in Chapter 13), many people still file a so-called Chapter 20 and get the benefit of discharging their debts in Chapter 7 first, followed by a Chapter 13 case and plan designed to pay back a home loan delinquency or other secured debt over an extended period of time.
An experienced bankruptcy lawyer will help you deal with the debt limits for Chapter 13 if they may cause a problem for you. With some careful planning, your lawyer may be able to show you how you can still qualify for Chapter 13. For example, some of your unsecured debts may not count toward the debt limit (e.g., if they are “contingent” and not “liquidated” or fixed in amount). In addition, secured debts that exceed the value of your property may be “split” into secured and unsecured portions, thus reducing the total amount of “secured debts” that apply to you.
In addition to these eligibility requirements for Chapter 13, you will also need to get credit counseling (a simple process that your Glendale bankruptcy attorney will show you how to handle). And as a Chapter 13 debtor, you will need to have filed any required tax returns for the 4 previous tax years before you meet with the Chapter 13 trustee in your case.
The Bankruptcy Law Center is a firm of experienced bankruptcy lawyers that serves Glendale. Call us and meet with us for free. We will explain your options and guide you through the process of resolving your debt issues.