Are You Eligible for Chapter 13 Bankruptcy?

By Attorney Stephen Elias

Not everyone can use Chapter 13 bankruptcy. To qualify, you must meet certain eligibility requirements, and you must be able to propose a legally confirmable repayment plan. Here are the eligibility requirements to file for Chapter 13 bankruptcy, and what you must do during the bankruptcy case in order to keep it from being dismissed.

Prior Bankruptcy Discharges May Preclude a Chapter 13 Discharge

You can’t get a Chapter 13 discharge if you received a discharge in a previous Chapter 13 case in the last two years or a discharge in a Chapter 7 case filed within the last four years. You aren’t barred from filing for Chapter 13 bankruptcy in these circumstances, but you can’t get a discharge. (See Filing for Bankruptcy Multiple Times.)

Business Entities Can’t File for Chapter 13 Bankruptcy

To file a Chapter 13 bankruptcy case, you must be an individual (or a husband and wife filing jointly). If you own your own business as a sole proprietor or partner, you can include all business debts on which you have personal liability. You have to file your case in your name, however, not in the name of the business.

You cannot file for Chapter 13 bankruptcy on behalf of a corporation, limited liability company (LLC), or partnership. If you want to file a reorganization bankruptcy in that situation, you must file a business Chapter 11 bankruptcy.

Your Debts Must Not Be Too High

You do not qualify for Chapter 13 bankruptcy if your secured debts exceed $1,081,400 or your unsecured debts are more than $360,475.

You Must Stay Current on Your Income Tax Filings

Within several months after you file for bankruptcy, you will have to prove that you filed federal and state income tax returns for the four prior tax years.

During the course of your plan, you must remain current on your tax filings. Failure to do so can result in your bankruptcy case being dismissed.

You Must Keep Making Your Child Support and Alimony Payments

Even if you owe back child support or alimony, you must meet your current support obligations during the course of your plan. If you don’t keep up with your payments, your bankruptcy can be dismissed.

You Must File Annual Income and Expense Reports

You are required to file annual income and expense reports in order to keep your Chapter 13 case alive. Failure to file these reports can result in your case being dismissed.

Your Proposed Repayment Plan Must Pay All Required Debts

Certain debts must be paid in full in a Chapter 13 plan. If your current monthly income, less reasonable living expenses, won’t allow you to pay off those debts within the required plan period, then the court will not confirm your plan. To learn which debts must be paid in full, see Debts You Must Pay in Chapter 13 Bankruptcy.

In addition to your required debts, you must also pay a commission to the trustee, equal to about 10% of the total payments you make under your plan.

Your Unsecured Creditors Must Get at Least as Much as They Would Have Received in a Chapter 7 Bankruptcy

Although using Chapter 13 allows you to keep your property, it does not allow you to deprive creditors of the money they would have received if you had used Chapter 7. Your plan must propose payments to your nonpriority, unsecured creditors (those to whom you owe credit card debts, medical bills, lawsuit judgments, and so on) that are at least equal to what they would have received in a Chapter 7 case.

You Must Participate in an Approved Personal Financial Management Course

Although you don’t have to take a personal financial management course prior to filing for Chapter 13 bankruptcy, you must complete such a program before the court will discharge your debts. The agencies providing this service must be approved by the Office of the U.S. Trustee, which imposes specific curriculum requirements that are intended to require about two hours of your time.

Excerpted from How to File for Chapter 7 Bankruptcy, by Attorney Stephen Elias, Albin Renauer, J.D., & Robin Leonard, J.D. (Nolo).