Coming to the realization that you are financially in-over-your-head is a big step. For many people who are facing insurmountable debt, Chapter 13 bankruptcy may be a good option. It can allow them to repay certain creditors less than what is owed, without having to give up all of their assets, such as their home and vehicle. However, Chapter 13 bankruptcy isn’t right for everyone and in fact, not everyone is eligible for it.
Although Chapter 7 bankruptcy is often thought to be better since it doesn’t require the person in debt to pay back their creditors, some people don’t qualify for it. Alternatively, some people make the decision to file for Chapter 13 bankruptcy as it offers certain things that Chapter 7 does not.
There are many reasons why someone would elect to file for Chapter 13 bankruptcy instead of Chapter 7:
In order to be eligible for Chapter 13 bankruptcy, you must submit evidence that you already filed your federal and state income tax returns for the previous four years from the date of filing. The court does have the option of postponing your proceedings if you are not yet current on these filings. However, this isn’t the best option.
When you file for Chapter 13 bankruptcy, you must also prove that you will be able to meet your obligations regarding your repayment plan. Therefore you will have to demonstrate to the bankruptcy court that even after making required payments on secured debts and specific allowable expenses, you will still have enough money left over. It’s important to note that there are still certain debts that you must pay back in full for your case to proceed.
In order to show that you will have enough income to meet your obligations under your repayment plan, you can include the following sources of income:
Also important to note is that if you are married and not working, you can file solo and use money from your spouse as a source of your income or you can file jointly with your working spouse.
You must also demonstrate that your debt (both secured and unsecured) does not exceed a certain amount. This amount changes every three years.
Secured debt is that which can cause you to lose specific property should you fail to make a payment to your creditor. This includes things such as car loans and home loans. A debt can also be secured if a creditor has filed a lien against a specific property of yours.
Unsecured debt is that which does not allow the creditor to take specific property of yours. Common examples of unsecured debts include utility bills, legal bills, medical bills, and credit card bills.
One of the easiest requirements to check off when proving eligibility for Chapter 13 bankruptcy is that you are filing as an individual rather than a business. Businesses may not file for Chapter 13, but will usually file for Chapter 11 when necessary. Unfortunately, stockbrokers and commodity brokers may not file a Chapter 13 bankruptcy case, even if they want to discharge only personal (nonbusiness) debts.
However, if you are a sole proprietor, your business debts will be included with your personal debts, since you are responsible for both. Be sure though that you are filing as an individual and not under your business name. Although you can include business debts, in this case, the business will remain on the hook for the debt.
At Chicago Bankruptcy Clinic, we will handle all the details of your bankruptcy filing with precision and professionalism. We are familiar with the rules and procedures of the local bankruptcy courts and have developed working relationships with bankruptcy trustees in jurisdictions throughout Chicago. Our legal team has a well-earned reputation not only as dedicated advocates of our clients but as honest brokers as well.
If you are considering filing for Chapter 13 bankruptcy, don’t go it alone. When you work with our experienced bankruptcy lawyers, you will have peace of mind knowing that debt relief is on the way. Please contact our office today for a free consultation.