What Are The Rules Of Chapter 13?

Chapter 13 bankruptcy, also sometimes called the "wage earner's plan," provides individuals with conventional incomes the opportunity to develop a plan. The plan helps a debtor restructure their debt and gives them the chance to pay back a portion or all of their debts. Under a Chapter 13 bankruptcy repayment plan, the debtor will be required to contribute agreed-upon monthly payment installments to creditors over the course of a three-year to five-year timeframe. In return, during this three to five-year repayment time period, creditors are prohibited from beginning or continuing collection efforts against the filer. The filer is given a bit of breathing room and is able to focus on their repayment plan. Furthermore, foreclosure proceedings will also cease, allowing Chapter 13 filers to keep their homes. While Chapter 13 bankruptcy may seem straightforward enough, there are many rules that must be adhered to. To learn more about the rules of Chapter 13 bankruptcy, continue reading this article!

Rule 1: Businesses Can Not File Chapter 13 Bankruptcy

While certain types of bankruptcy are available to both individuals and businesses, Chapter 13 bankruptcy is only available to individuals, not businesses. Individuals may choose to file separately or jointly as a married couple. If the individual is personally responsible for business-related debts, such as those involved in sole proprietorships, their business-related debts may qualify under Chapter 13 bankruptcy. In fact, individuals who operate sole proprietorship businesses could potentially greatly benefit from Chapter 13 bankruptcy. In these scenarios, it is best to consult with a bankruptcy chapter 13 attorney who will then be able to assess the current situation. 

Rule 2: The Chapter 13 Bankruptcy Petitioner Must Be Employed

As its alternate name, "wage earner's plan," might allude, Chapter 13 bankruptcy is an option available to wage earners. When a debtor files for Chapter 13 bankruptcy, they will be required to prove to the court that they are able to financially afford to meet their monthly household obligations and the agreed-upon monthly payment installments. In addition to a high enough income, the petitioner's income must be consistent. A Chapter 13 case could be tossed out if the petitioner's income is too low or irregular. 

Rule 3: The Petitioner's Debt Must Be Within The Limit

If an individual's debt is too high, they will be unable to file for Chapter 13 bankruptcy. The individual's debt can be broken into two categories: secured and unsecured debt. Secured debt refers to debt that is backed or "secured" by collateral. Common examples of secured debt are mortgages on real estate or car payments on a vehicle. On the other hand, unsecured debt includes loans that are not backed by tangible collateral. Typically, the majority of debts are unsecured. Unsecured debts can consist of credit cards, medical bills, utility bills, and rent. While the limits set in place for secured and unsecured debt are subject to change, currently, a debtor's secured debts must not exceed $1,184,200, and unsecured debts must not exceed $394,725. If an individual's debt surpasses these limits, they will not qualify for Chapter 13 bankruptcy. 

Rule 4: The Petitioner Must Complete The Mandatory Course

Individuals who file for bankruptcy must take two mandatory court-approved courses. At least 180 days prior to filing for Chapter 13 bankruptcy, the debtor must take a pre-bankruptcy credit counseling course. The second course that a petitioner will be required to take is a post-bankruptcy debtor education course. 

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