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What are the Qualifications for Chapter 13 Bankruptcy?

On Behalf of | Jul 16, 2021 | Chapter 13 Bankruptcy

Chapter 13 is commonly referred to as a “wage earner” or “restructuring” bankruptcy. Debtors are permitted to reorganize their financial obligations, paying some debts through a three to five-month bankruptcy plan and potentially discharging some. While many people are eligible to file a Chapter 13 case, some requirements must be met.

A potential filer must be eighteen years or older and a legal resident of the United Statements. Furthermore, to file in a particular state, the individual must have lived in the state for the majority of the previous 180 days or have substantial real property located in the state. Additionally, a Chapter 13 debtor must complete a credit counseling course within 180 days before filing their case. There are also debt limits. As of April 1, 2019, a Chapter 13 filer cannot have more than $419,275 liquidated, noncontingent unsecured debts or $1,257,850 liquidated, noncontingent secured debts.

If you are thinking about filing for Chapter 13, our experienced Roseville bankruptcy attorneys are available to guide you through the process. Chapter 13 bankruptcies are often beneficial. However, they are also complicated and lengthy. In many situations, the work put into a case before it is filed impacts its likely success. To discuss the eligibility requirements in more detail, contact The Bankruptcy Group at 888-710-4334.

Chapter 13 Eligibility

Before you can file a Chapter 13 case, you must meet several eligibility requirements.

Your Taxes Must Be Filed and Current

You must provide proof that your federal and state income tax returns for the previous four years were filed. Copies of your most recent returns will be sent to the Chapter 13 Trustee. If your tax returns are not completed, you could request a postponement. However, this is not guaranteed. Failure to produce evidence that your taxes were filed will result in your case being dismissed.

Chapter 13 Requires Sufficient Disposable Income

The purpose of Chapter 13 is to pay all or a portion of your creditors through a proposed bankruptcy plan. To do so, you must prove to the bankruptcy court that you have sufficient income to pay your ordinary monthly expenses and still have the necessary disposable income to fund your plan.

While income is typically considered wages or your salary, many different sources of income could be used to fund your Chapter 13 plan.

  • Self-employment income
  • Commissions or bonuses
  • Pension
  • Social Security benefits
  • Disability payments
  • Unemployment benefits
  • Public assistance
  • Child support
  • Alimony
  • Rent
  • Royalties
  • Contributions from family members or friends
  • Proceeds from the sale of a property

You do not have to be earning an income to qualify for filing. If you are married and your spouse is working, their income could fund the bankruptcy plan. In fact, you would have to include their income in the paperwork even if they were not part of the bankruptcy filing.

Required Documents to File For Chapter 13

In addition to the various statutory requirements to file for Chapter 13 bankruptcy, you will have to provide specific documents to our Sacramento bankruptcy lawyers. While each case is unique, some basic documents will be required in most filings.

You will have to show proof of your household income for the six months prior to the filing date. For example, you will need to gather your pay stubs. If you are married, you must also provide copies of your spouse’s pay stubs – even if you are filing individually. Self-employed debtors will have to file a business questionnaire and monthly operating reports. Unemployed filers must provide their award letter. If you collect rent, you will need to give our firm copies of the leases and bank statements showing the deposits. For debtors who receive contributions from their friends or family, a contribution affidavit will be necessary.

In addition to the proof of income, a Chapter 13 debtor will need the following documents.

  • Copies of your federal and state tax returns for the previous four years
  • Bank statements
  • Mortgage statement
  • Copy of your car loan
  • Valuation of your home
  • Proof of homeowners and car insurance
  • Life insurance policies
  • Retirement accounts

Finally, before filing for bankruptcy, you must complete a credit counseling course from a certified agency. A certificate indicating that the course was completed before the filing date will be filed with your case.

You might be asked to provide additional documents based on your particular circumstances. Our experienced Folsom Chapter 13 bankruptcy lawyers will thoroughly review your case and give you clear guidelines on what is necessary.

A Business is Not Allowed to File for Chapter 13 Bankruptcy

Chapter 13 is for individuals or couples. A business is not permitted to file for Chapter 13 bankruptcy. If a business needs to reorganize, a Chapter 11 filing is available. However, it is critical to remember that a sole proprietor is permitted to file as an individual. While they cannot file under the business name, they are allowed to include both business and personal debt as they are personally responsible for each.

If you own a business but are not a sole proprietor, you could still file as an individual. You could include business debt that you are personally responsible for in your bankruptcy. However, unlike a sole proprietor, the business will still be legally liable for the debt.

Call Our Experienced Chapter 13 Bankruptcy Attorney to Discuss the Filing Process

Filing for bankruptcy is often complicated. It takes careful planning for a case to be successful. Additionally, a debtor must qualify for Chapter 13 and gather a significant amount of paperwork, documents, and statements. Our knowledgeable Huntington Beach bankruptcy attorneys at The Bankruptcy Group are available to answer your questions and guide you through the process. Call 888-710-4334 to schedule a free consultation.