Chapter 3 Are You Eligible to Use Chapter 13?

• Library: Chapter 13 Bankruptcy (Nolo) (2020 Ed.)

CHAPTER 3: Are You Eligible to Use Chapter 13?

The Effect of a Previous Bankruptcy Discharge

Business Entities in Chapter 13

Chapter 13 Debt Limits

Is Your Debt Contingent or Cosigned?

Debt Limits in Joint Bankruptcy Cases

Providing Income Tax Returns

Child Support and Alimony Payment Requirements

Annual Income and Expense Reports

Drafting a Repayment Plan

Debts You Must Pay in Chapter 13

Rough Calculation: Can You Repay Required Debts in Chapter 13?

Paying to Keep Nonexempt Property

You Must Take Two Educational Courses

Before you can decide whether you should file for Chapter 13, you need to figure out whether you are legally eligible to do so. Not everyone can use Chapter 13. To qualify, you must meet eligibility requirements and propose a repayment plan that pays creditors what they're legally entitled to receive. This chapter explains these requirements.

The Effect of a Previous Bankruptcy Discharge

You can't get a Chapter 13 discharge if you received:

• a discharge in a previous Chapter 13 case in the last two years, or
• a Chapter 7 discharge in a case filed within the previous four years.

That doesn't mean that you can't file for Chapter 13—you can. However, because it will be too soon to receive another debt discharge, you won't be able to wipe out debt at the end of your case. You might wonder why someone would file for Chapter 13 if it wasn't possible to get a discharge, but it actually can be useful.

Suppose you wiped out all of your dischargeable debt in Chapter 7. Afterward, however, you still had creditors coming after you for things you couldn't get rid of, such as tax debt or support arrearages. You might want to file for Chapter 13 bankruptcy immediately after receiving the Chapter 7 discharge. This would give you time to pay off the debts while keeping creditors at bay. You wouldn't need a debt discharge.

Filing for Chapter 13 immediately after Chapter 7 is known colloquially as a "Chapter 20 bankruptcy." Not all courts approve of the practice, so you'll want to speak with a local bankruptcy attorney before using this strategy.

Business Entities in Chapter 13

A business entity cannot file for Chapter 13 bankruptcy. However, if you operate your business as a sole proprietorship, you are personally liable for the debts of the company. For bankruptcy purposes, you and your business are one and the same. Therefore if, the sole proprietorship generates income, you can use Chapter 13 to reorganize all of your debt—both personal and business—and possibly remain open.

Also, you can include other types of business debts you're responsible for in your Chapter 13 bankruptcy case, too, such as a personal guarantee to make good on corporate debt. As with credit card obligations, you'll likely pay only a portion of the balance, but it won't eliminate the company's repayment obligation. In addition, filing for bankruptcy can negatively affect existing business relationships (especially partnerships), so you'll want to seek counsel from a bankruptcy attorney before proceeding. Finally, you should be aware that stockbrokers and commodity brokers cannot file a Chapter 13 bankruptcy case, even for personal (nonbusiness) debts.

Chapter 13 Debt Limits

You will not qualify for Chapter 13 bankruptcy if your secured debts exceed $1,257,850 or your unsecured debts are more than $419,275. A secured debt is a debt guaranteed by collateral (like your home or car). If you fail to pay, the creditor can take the collateral. The payment of unsecured debts, such as credit card balances, isn't guaranteed with property.

For example, if you owe $2 million on your home, you can't file for Chapter 13 bankruptcy. The same would be true if you owed $250,000 on a student loan, a $50,000 credit card balance, and a $200,000 deficiency judgment from a previous foreclosure (all unsecured debt). If you need help figuring out how much you owe in secured and unsecured debt, see "Classifying Your Debts" in Ch. 4.

When computing your debt load, include only debts that are both liquidated and noncontingent. A debt is liquidated if you know the exact dollar amount you owe; a...