Chapter 13 Bankruptcy – Who Qualifies?
According to Bankruptcy Code 11 U.S.C. 109(e):
Chapter 13 Bankruptcy Qualifications: “Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $419,275 and noncontingent, liquidated, secured debts of less than $1,257,850 or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $465,275 and noncontingent, liquidated, secured debts of less than $1,395,875 may be a debtor under chapter 13 of this title [11 USCS §§ 1301 et seq.].”
What does “Individual with regular income” mean?
“Individual with regular income” does not preclude people with irregular income from filing Chapter 13 Bankruptcy so long as the Chapter 13 Plan payment is tailored to Debtor’s ability to pay and the Plan is feasible. However, under section 11 USC 101(30), “Individual with regular income” means individual whose income is sufficiently stable and regular to enable such individual to make payments under the Chapter 13 Plan, other than a stockbroker or a commodity broker. An individual income can fluctuate. For example, a car salesman working on commission but receive sufficient income to pay for living expenses and the monthly Chapter 13 Plan. The fact that the individual is able to make the monthly Chapter 13 Plan payments is a good argument that their income is sufficiently “regular”. However, the individual’s future income need not be absolute or 100% assured. For example, a sole proprietor’s income will vary due to consumer’s demand in the future. Or an individual may become unemployed in the future. From my experience, the individual is entitled to the benefit of doubt given their skills, past performances, and motivation.
“Individual with regular income” is not limited to “wage earner”. Individuals whose sources of income are pension, domestic support, disability, etc. does not preclude them from filing for Chapter 13 Bankruptcy so long as the Plan payment is feasible given their income and expenses. Of course, there are other qualifications that must be met.
Individual with insufficient income is not precluded from filing Chapter 13 Bankruptcy. From my experience, so long as the spouse or supporting individual signs and affidavit declaring his or her support of and commitment to the individual filing for Chapter 13 Bankruptcy and the declaration sounds feasible and plausible, this may compensate for the individual insufficient income to make the Chapter 13 Plan feasible.
However, income that are speculative like solely the possible sale of property may not suffice for eligibility for Chapter 13 Bankruptcy especially with no contracts in the works or potential buyer. However, proposing monthly Chapter 13 payments with a balloon payments when the house is sold may work.
At the hands of a creative and experienced Sacramento Bankruptcy Attorney Muoi Chea, she will figure out a Chapter 13 plan payment that is feasible to your income. As a Bankruptcy Attorney in Sacramento, Stockton, Fairfield, California, I have over 14 years of experience.
What is an “Individual” under Chapter 13 Bankruptcy?
Individual consist of a person or a sole proprietorship. However, “Individual” precludes corporation, partnerships and municipalities from filing for Chapter 13 Bankruptcy. If a corporation or partnerships want to restructure or reorganize, they should look into Chapter 11 Bankruptcy. Although a person who owns a corporation or partnership and file for Chapter 13 for her personal debts and the corporation or partnership is listed in Schedule B and as property of the estate. But the corporation or partnership as an entity itself cannot file for Chapter 13 Bankruptcy.
What is the Debt Limitation for Chapter 13 Bankruptcy?
On the date of filing of the Chapter 13 Petition, the individual must owes noncontingent, liquidated, unsecured debts of less than $419,275 and noncontingent, liquidated, secured debts of less than $1,395,875 for cases filed as of April 1, 2022. This number is subject to change.
What is debt is considered unsecured and secured can be argued to make or break an individual’s eligibility for Chapter 13 Bankruptcy. For example if the auto loan is greater than what the car is worth, is the amount greater than the car’s value considered an unsecured debt and only the amount of the car loan up to the car value considered the secured debt. This may make or break an individual’s eligibility for Chapter 13. For example, the individual has too much unsecured debt like credit cards approaching the debt limit but have plenty of room to spare for secured debt limit. Luckily this issue was decided in In re Wilkins, 564 B.R. 419. If the claim cannot be bifurcated under 11 U.S.C. 506(a) because of 11 U.S.C. 1325(a)’s hanging paragraph, then the entire amount of the auto loan is counted towards the secured debt limit.
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Obviously, this website is not intended to replace a consultation with an experienced Bankruptcy Attorney. The purpose is just to start a conversation. There is so much I can discuss in a webpage and not every case is the same. Different cases will require different analysis and approach.
For more information, call experienced Sacramento Bankruptcy Attorney Muoi Chea. I have helped over 1,000 consumers and small business owners eliminate or restructured their debts through Chapter 7 or Chapter 13 Bankruptcy. I accept clients from Northern to Central California: Sacramento, Stockton, Fairfield, Modesto, Tracy, Vacaville, Dixon, Woodland, Davis, West Sacramento, Roseville, Rocklin, Vallejo, Elk Grove, Citrus Heights, Carmichael, Rancho Cordova, El Dorado, Folsom, and nearby cities in California.