Who is eligible to file a Chapter 13 bankruptcy?
Changes to the federal bankruptcy law in 2005 resulted in far fewer people being able to qualify for Chapter 7 bankruptcy, but most Americans still have the option of filing for Chapter 13 bankruptcy if they are unable to handle their debts and need to use bankruptcy as a way out. Chapter 13 involves some restrictions, but it has a very limited number of qualification requirements and most Americans are eligible to take advantage of Chapter 13 protection if they need it.
Who Can File for Chapter 13?
An individual with regular income who is eligible for Chapter 13 bankruptcy has:
- Noncontingent, liquidated, unsecured debts totaling less than $419,275; and,
- Noncontingent, liquidated, secured debts totaling less than $1,257,850.
These debt amounts are adjusted periodically every three years to reflect changes in the consumer price index.
Noncontingent means that no condition need occur before the debt is due. In other words, the person filing bankruptcy owes the debt already and will have to repay it. Liquidated means that the amount of the debt is fixed and known. A debt can be considered liquidated even if the amount of interest or default penalties and collection costs is not known.
The spouse of a married individual must meet the same debt limits, but need not have a regular income.
In addition to having debt that falls within that range, a person who is eligible for Chapter 13 bankruptcy must also meet several other requirements. S/he must have:
- A regular source of income such that s/he can fund a Chapter 13 repayment plan
- Good faith in the filing (i.e. s/he is not engaging in bankruptcy fraud).
Chapter 13 vs. Chapter 7 Bankruptcy
If you are considering filing for Chapter 13 bankruptcy and have determined that you are eligible, recognize that Chapter 13 is different than Chapter 7. Chapter 13 is referred to as a "wage earners bankruptcy" as opposed to a total liquidation bankruptcy (as Chapter 7 is known).
Chapter 13 requires the debtor to repay some portion of the debts that are included in the bankruptcy as opposed to just having those debts forgiven after an asset sale. Under Chapter 13, you will not be required to sell your assets and you will not have to turn over income up front. But you will need to get your creditors to agree to a plan whereby you pay back a certain amount each month for three to five years.