Assess Your Chapter 13 Bankruptcy Eligibility

Discover if Chapter 13 Bankruptcy is the right path for your financial recovery.

At James H. Wilson, we understand that contemplating Chapter 13 bankruptcy is a significant decision. Not everyone qualifies for this form of debt relief, so it’s essential to determine if it aligns with your financial situation.

Chapter 13 Bankruptcy is Not for Businesses

Business entities are ineligible to file under Chapter 13; this route is reserved exclusively for individual debtors. Typically, a business will need to consider Chapter 11 for financial reorganization. Nonetheless, individual business owners can file for Chapter 13 to address personal liabilities linked to business debts.

The only individuals exempt from this are stockbrokers and commodity brokers, who are precluded from Chapter 13 bankruptcy filings, irrespective of whether the debts are business-related or personal.

Demonstrating Adequate Disposable Income is Crucial

Chapter 13 requires you to prove the existence of sufficient disposable income post-deductions for allowable expenses and secured debt payments. This is crucial to fulfilling the mandatory repayment obligations within your proposed plan. Without this, the court may not approve the payment plan. Here are potential sources of income for a Chapter 13 plan:

• Employment wages
• Self-employment earnings
• Seasonal job income
• Sales commissions
• Pension distributions
• Social Security
• Disability or workers’ compensation
• Unemployment or strike benefits
• Public assistance
• Revenue from child support or alimony
• Rental or royalty income
• Income from the sale of property

For couples, income used to fund a Chapter 13 plan may come from either spouse, regardless of employment status.

Debt Thresholds Must Be Met

Your eligibility for Chapter 13 is also dependent upon the amount of your debt. Secured debts must be under a certain amount adjusted every three years, while unsecured debts should not exceed another specified amount. Secured debts are those backed by collateral, like real estate or vehicles, which creditors can claim if payments lapse. Unsecured debts, such as credit card bills and medical expenses, do not involve specific collateral.

Income Tax Filings Must Be Up to Date

A prerequisite for Chapter 13 bankruptcy is the submission of evidence that you have filed federal and state income tax returns for the four years prior to filing. If you’re behind, you may request an extension from the court. Failure to provide your tax records will result in dismissal of your Chapter 13 case.

Determining eligibility for Chapter 13 bankruptcy can be complex, but you don’t have to navigate it alone. Contact James H. Wilson at 804.740.6464, and let our experience guide you through assessing your options and planning your financial future.