• 03
  • June
    2011

When Congress passed the Bankruptcy Prevention Abuse and Consumer Protection Act in 2005, one of the stated goals of the legislation was to make it more difficult for consumers to file for personal bankruptcy. Specifically, the act was designed to push people into filing for Chapter 13 bankruptcy instead of Chapter 7 whenever possible. This is because, under Chapter 13, creditors receive at least a portion of the money they are owed by the filer. In contrast, Chapter 7 allows debts to be completely wiped out, and creditors receive no portion of the money they are owed.

However, because of the requirement that debtors pay their creditors back in part, not everyone who files for bankruptcy protection will qualify for Chapter 13. A debtor must have a regular income that is sufficient to pay some of their debts while still allowing them enough money to live on.

After filing a Chapter 13 bankruptcy, a debtor will propose a repayment plan to the court, under which he or she will make set payments to creditors over a period of up to five years. If the debtor's monthly income is below the applicable state medium, which varies from state to state, the plan will be for three years. If his or her income is above the medium, the plan will be for five years. However, five is the maximum, regardless of income or other circumstances.

There are certain requirements for a Chapter 13 filing. Only individuals, and not businesses, may file. However, a business owner may file for personal bankruptcy, and may include business debts for which he or she is personally liable.

In addition, a filer must not have debt above the ceiling set by the bankruptcy code. This limit is $1,010,650 for secured debts (such as a home or car) and $336,900 for unsecured debts (such as credit card debt). Finally, a debtor must prove that he or she is current on federal and state income tax filings.

If you are contemplating bankruptcy and you meet those requirements, it could be in your benefit to consider a Chapter 13 filing. A bankruptcy attorney can answer any individual questions you have about the process.

Source: Bankruptcy Home, "Not Everyone Qualifies to File for Chapter 13," 2 June 2011