Chapter 13 has many benefits not available under Chapter 7. So what determines whether you can file under Chapter 13?
Earlier in this series on important bankruptcy questions we wrote about qualifying for Chapter 7 “straight bankruptcy” under the “means test.” Qualifying instead to file a Chapter 13 case is quite different. So what does it take to be allowed to do one?
You have to be an “individual,” who has “regular income, and whose debts total less than certain limits.
Chapter 13 is only available to individuals—humans, not legal business entities. Corporations and partnerships and other forms of business cannot file bankruptcy themselves.
However, if you are a person who is an owner or part-owner of a corporation, partnership, etc., you could file a Chapter 13 case yourself, as to your own individual debts, which may well overlap in part with the business’ debts through co-signings and personal guarantees. And if you run a business as a sole proprietorship (in your own name or doing business under a business name but not as a legally established business entity), you can file Chapter 13 case individually, but also including the business’ debts because with a sole proprietorship the business and you are legally a single entity.
A “joint case” can be filed under Chapter 13, just like under Chapter 7, by an individual “and such individual’s spouse.”
“Individual with Regular Income”
This phrase is defined in the Bankruptcy Code, although not in a very helpful way. An “individual with regular income” is one “whose income is sufficiently stable and regular to enable such individual to make payments under a plan under Chapter 13.”
What does this definition mean? How “stable and regular” does a debtor’s income need to be before it is “sufficiently” enables you make Chapter 13 plan payments?
It’s admittedly quite an ambiguous definition. As a result bankruptcy trustees and judges can exercise a lot of discretion about how they enforce this. Often the most important and practical consideration is whether you make the initial monthly plan payments on time—the two or three payments usually due before the “confirmation hearing” (which is often the first time the bankruptcy judge directly focuses on your case). If you pay those and the later plan payment on time, you’ll be proving that your “income is sufficiently stable and regular” to make Chapter 13 plan payments.
To be eligible for Chapter 13, there are dollar amount limits on how much unsecured and secured debts you may have. Having too much of either will disqualify you. You must have total unsecured debts of less than $383,175, and total secured debts of less than $1,149,525. These limits apply whether you file a Chapter 13 case by yourself or with your spouse—they are NOT doubled for a married couple.