Are You Eligible to File Chapter 13 Bankruptcy?

Contrary to Chapter 7 bankruptcy, this chapter does not allow you to discharge certain debts in return for the liquidation of a non-exempt property.  Under Chapter 13 you get to keep your property and repay your creditors according to a court-approved repayment plan in 3 to 5 years’ time.

To be able to file Chapter 13, you need to fulfill the standing requirements under this chapter.  These include:

You can’t be a Business

Businesses are not entitled to file for bankruptcy under Chapter 13. Not even if they are sole proprietorships. Business bankruptcies are dealt with the principals laid down in Chapter 11 bankruptcy. However, if you are the owner of a business, you can still file Chapter 13 bankruptcy, but as an individual and not in the name of your business.

Chapter 13 bankruptcy gives you the right to include your business-related debts that hold you personally liable. The only exception to the rule is in case of commodity and stock brokers. They are ineligible to file for Chapter 13 even if they are only looking for the discharge of personal debts.

Is Your Disposable Income Enough?

To qualify for Chapter 13, you need to show the court that you have and will have enough disposable income to meet your obligations as scheduled in the Chapter 13 plan. The disposable income is your total income less compulsory secured debt payments and specific allowed expenses. The repayment plan you propose should completely pay off certain debts in order to get approval from the bankruptcy court.

To finance a Chapter 13 payment plan, you can use any of the following as a source of income:

• Your salary or wages
• The income earned from self-employment
• Seasonal work wages
• Commissions earned from sales work
• Pensions
• Your Social Security benefits
• Your workers’ compensation or disability benefits
• Strike  benefits, unemployment benefits, and other similar sources
• Welfare payments
• Alimony and/or child support you receive
• Rents and royalties
• The earning from selling property. Specifically if selling property is your primary source of income.

In case you are married and unemployed, you have the option to file alone and utilize your spouse’s money as the source of income or jointly file for bankruptcy with your working spouse.

Debts Too High Do Not Qualify

If the collective amount of your secured debts is more than $1,184,200, you are not eligible for filing Chapter 13. The most common examples of secured debts are car loans and mortgages. In addition to the upper limit for secured debts, you also need to meet a limit of not more than $394,725 for your unsecured debts. These debts may include medical bills, utility bills, credit cards, legal bills etc.

Your Taxes Should be paid

In order to file for Chapter 13 bankruptcy you need to submit evidence showing you have filed your state and federal income tax returns for a four-year period prior to the date you file bankruptcy on. The court will postpone the bankruptcy proceedings in case you need further time to update your tax filings to current. If you fail to provide proof, your case would be dismissed.

For more information on Chapter 13 bankruptcy and its implications in Long Island New York, visit our website.