Chapter 13 bankruptcy might be a great option for you to restructure your debt and secure the financial relief you need—if you are eligible for it.
But how do you determine your eligibility to file for Chapter 13?
Below is a general overview some key considerations of which you should be aware.
Businesses are ineligible for Chapter 13 bankruptcy
No business, even a sole proprietorship, may file for Chapter 13 bankruptcy protection. Instead, they will be directed to file for Chapter 11, which is also a means of restructuring debts and organizing payment plans, or a Chapter 7.
Business owners, however,may file for Chapter 13 bankruptcy as individuals and include business-related debts for which they are personally liable. The big exception is that stockbrokers and commodity brokers are not allowed to file for Chapter 13 bankruptcy, even if only to discharge personal debts.
Your debts must not eclipse a certain amount
You will not qualify for Chapter 13 bankruptcy if the value of your secured debts exceeds $1,184,200—a number that will next be adjusted in April 2019. A secured debt is one in which you could potentially lose property if you fail to pay your creditor, such as for a car loan or mortgage. A debt can also be secured if your creditor has a lien on your property.
The value of your unsecured debts cannot exceed $394,725 in Chapter 13 bankruptcy. Unsecured debts are those that do not allow creditors to take your property upon default. Most debts, such as credit cards, utilities and medical bills, fall into this category.
You must have enough disposable income
To qualify for Chapter 13 bankruptcy, you must prove to a bankruptcy court that you have enough money left over after subtracting all your expenses and required payments on your secured debts to be able to meet repayment obligations. Some debts, known as priority debts, must be paid back in full under your plan for a judge to approve it.
You may use income from many different sources to help you fund a Chapter 13 payment plan. This goes beyond the wages or salary you earn for your job and may include Social Security benefits, unemployment benefits, pension payments, child support, alimony, royalties, rent payments and income from the sale of real estate.
Your tax filings must be up to date
Finally, to be eligible for Chapter 13 bankruptcy, you must be able to prove you are current with your federal and state income tax returns. This means you must have filed for all four of the previous years and have made any necessary payments as determined by the Internal Revenue Service.
If you have additional questions about filing for Chapter 13, contact a trusted Denver bankruptcy attorney at Long & Long, P.C.