Chapter 13 is a very effective way to dealing with debt, but it is not available to everyone. Those who cannot file for Chapter 13 bankruptcy include:
Businesses: No business can file for Chapter 13, even if it is a sole proprietorship. If a business wishes to reorganize its debts, it should file for Chapter 11. If you own a business, you can file for Chapter 13 as an individual and include the business related debts for which you are personally responsible. However, stockbrokers and commodity brokers cannot file for Chapter 13.
Insufficient Disposable Income: Individuals must be able to prove to the court that they have sufficient income to meet the obligations for repayment imposed by Chapter 13; those with insufficient disposable income cannot file. A Chapter 13 case can be funded by:
- regular wages or salary
- money earned from self-employment
- income from seasonal labor
- commissions from sales
- pension payments
- benefits from Social security, disability, workers’ compensation, unemployment, strike, welfare, etc.
- child support or alimony received
- royalties and rents
- proceeds from the sale of a property
In the event that you are married, the income for this requirement does not exclusively need to be yours. For example, an unemployed or nonworking spouse can file and use the money of the working spouse as the source of income.
Extremely High Debt: If your secured debt exceeds $922, 975 (this amount is increased every three years) you cannot file for Chapter 13. A secured debt means that you, the debtor, will lose a specific piece of property in the event that you fail to repay the creditor. Typically, home loans and auto loans are secured debts. Another debt may also be secured if a creditor has filed a lien against your property.
If your unsecured debts exceed $307, 675 (this is also increased every three years), you may not file for Chapter 13. An unsecured debt is not bound by collateral; that is, your property cannot be repossessed by the creditor if you fail to pay. This is the case for most debts, including those stemming from credit cards, or medical bills.
Behind on Taxes: In order to file for Chapter 13, you need to provide proof that you are current on your taxes and have paid for the previous four years. The court proceedings can be delayed, in the event that you need to get current on your taxes. If you fail to do this, your case will be dismissed.