Are You Eligible for Chapter 13 Bankruptcy?

Find out if you qualify to file for Chapter 13 bankruptcy.

Chapter 13 is a type of bankruptcy in which individuals can repay some or all of their debts through a restructuring plan. Not everyone can file for Chapter 13 bankruptcy. It has some filing requirements, and these are different from the Chapter 7 requirements.

(To learn more about Chapter 13 bankruptcy, see the Chapter 13 Bankruptcy topic.)

Chapter 13 Filing Requirements

In order to file for Chapter 13 bankruptcy, you must meet the below qualifications.

Individuals Only

A business cannot file Chapter 13 bankruptcy; only a person or a married couple can do so. If you are a business owner, you can file Chapter 13 for your own personal debts but not the debts of the business. If you personally guaranteed any of your business debts, you can include those debts in Chapter 13, but any amounts not paid through the bankruptcy will still be the business' obligation - the discharge will only apply to you personally.

Example. Small Business is a corporate entity. The CEO wants to put the business in bankruptcy. Small Business cannot file Chapter 13.

Example. The CEO of Big Business, John, wants to file Chapter 13 because he and his wife have too much credit card debt but make too much money to file Chapter 7. John also owes personally on a loan obtained for Small Business. John and his wife can file Chapter 13 and include the business loan; at the end of the case, John will not be responsible for the loan, although Small Business still will be.

Cannot Be a Stockbroker or Commodity Broker

If you are a stockbroker or a commodity broker, you cannot file Chapter 13, even if you want to file for your own personal debts only. If you are not a stockbroker or a commodity broker but your spouse is, your spouse cannot file a joint Chapter 13 with you -- you will have to file alone.

Example. Tim wants to file Chapter 13; he and his wife owe a lot of debts. Tim's wife is a stockbroker; she cannot file a joint case with Tim.

You Must Have Regular Income

Chapter 13 bankruptcy cases are for wage earners or anyone with reliable, steady income to fund the Chapter 13 plan. Steady income is necessary to make regular payments for a period of years to the Chapter 13 trustee. A court is unlikely approve a Chapter 13 plan for a person who cannot prove steady income, because the plan would be unfeasible.

Example. Mary is a widow living on Social Security. She wants to file Chapter 13 to save her house. Although she doesn't have a lot of income, her income is steady, and she qualifies to file Chapter 13 and propose a plan.

Your Debts Must Be Within Certain Limits

As of April 2016, to file Chapter 13, you cannot have unsecured debts that exceed $394,725. Unsecured debts include student loans, credit card debt, personal loans, income taxes and medical bills. Your secured debts, which include vehicle loans and mortgage loans, cannot exceed $1,184,200. If you are married and filing jointly, your debt and your spouse's debt combined cannot exceed these limits -- the limit is not doubled in joint cases.

These debt limits are adjusted every three years. The next adjustment will be April 1, 2019.

Example. Tim and his wife have $400,000 in credit card debt between them. They cannot file a joint Chapter 13 because their combined debt exceeds the limit set forth by bankruptcy law.

No Discharge if You Previously Filed Within a Certain Number of Years

If you have filed bankruptcy before and received a discharge in that past bankruptcy, you can still file Chapter 13. However, if you filed for Chapter 7 bankruptcy the past four years, or filed for Chapter 13 within the last two years, you will not be eligible for a discharge in the current Chapter 13 case. Any amounts not paid through the plan will be your responsibility after the case is closed.

Example. In 2011, Eve filed Chapter 7. She received a discharge. In 2013, Eve is in financial trouble again and needs a bankruptcy to stop debt collections. She can file Chapter 13, but she will not receive a discharge. When her case is complete, she will still owe whatever was not paid through the case.

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