Chapter 13 Qualifications

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Chapter 13 Qualifications

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Before you can file for Chapter 13 bankruptcy, you must meet and satisfy the Chapter 13 qualifications which are summarized below. If you do not have the qualifications for bankruptcy, you cannot file a Chapter 13 bankruptcy.

Bankruptcy was created to give people a fresh start. However, to  keep people from abusing personal bankruptcy, federal law includes bankruptcy qualifications which are requirements that people must meet before they can file bankruptcy. So, just what do you have to do to qualify for Chapter 13 bankruptcy?

First, to file a Chapter 13, you must be an individual. Chapter 13 bankruptcy is not for
businesses, but for individuals. You can include business debts in a Chapter 13 bankruptcy if you are personally responsible for the debts. This includes your debts that are from your being self-employed or operating an unincorporated business.

Second, to qualify for Chapter 13 bankruptcy, you must have regular income and you must have enough disposable income to pay your repayment obligations.

Regular income means that you have a steady source of income. You may be an employee and paid at regular set intervals. Or you may be self employed or operating an unincorporated business.

 Disposable income is the money that you have left after subtracting certain allowed expenses and required payments on secured debts (such as a car loan or mortgage payment). Keep in mind that when calculating disposable income, you do not use the payment amounts that you are currently suppose to pay. Instead, you use the amount of money that is needed to make payments to the bankruptcy trustee on your repayment plan.

Third, Chapter 13 qualifications require that your unsecured debts (such as credit cards, medical bills, etc.) cannot exceed $307,675 and your secured debts (debts where property such as your home, car, etc. is put up as collateral) cannot exceed $922,975. These amounts are adjusted periodically to reflect changes in the consumer price index and may be slightly different from those stated.

Forth, you do not qualify for Chapter 13 bankruptcy if, within 180 days of your filing bankruptcy, you had a prior bankruptcy petition that was dismissed because of (1) your willful failure to appear before the bankruptcy court, (2) you failed to comply with bankruptcy court orders, or (3) the prior bankruptcy was voluntarily dismissed after your creditors sought relief from the bankruptcy court to recover property upon which your creditors hold liens. If you have not filed for bankruptcy during the most recent previous 6 months, then this requirement does not affect you.

Fifth, as part of the Chapter 13 qualifications, you must have filed your federal and state income tax returns for the latest four tax years prior to the date of your filing bankruptcy.

Sixth, qualifications for bankruptcy include that you must have received credit counseling from an approved credit counseling agency either in an individual or group briefing within 180 of your filing personal bankruptcy.

Seventh, in order to qualify for chapter 13 bankruptcy, your creditors must receive under the Chapter 13 bankruptcy more than they would receive under a Chapter 7 bankruptcy. Normally, this requirement is easily satisfied because most people filing bankruptcy do not have a lot of assets. If they filed a Chapter 7, their creditors would get either nothing or close to nothing. Whereas, if they filed Chapter 13, their creditors would get something, at least more than under a Chapter 7.

However, there are situations where a creditor will be paid more under a Chapter 7 liquidation than under a Chapter 13 payment plan. Usually, in these cases, it is just a matter of modifying the payment plan so that the creditors will receive more.

This is general information only. If you have any questions whatsoever, talk with a lawyer licensed in your state who has experience with Chapter 7 bankruptcy, Chapter 13 bankruptcy, or bankruptcy in general.

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