Called "wage earner's bankruptcy," Chapter 13 has several important features. However, there are also restrictions. Before deciding to file any chapter of bankruptcy, you must determine which is right for you.

A business, even a sole proprietorship, cannot file Chapter 13 in the business's name. Businesses are invited to file Chapter 11 bankruptcy when they need help reorganizing their debts. However, if you own a business as a sole proprietor, you can file for Chapter 13 as an individual and include your business-related debts for which you are personally liable only. There is one exception to this: Stockbrokers and commodity brokers cannot file Chapter 13 bankruptcy case, even if just to include personal debts.

In order to be eligible for Chapter 13 bankruptcy, you must meet a few requirements:

1. You must have stable and regular income. Note that this does not mean you must earn the same amount week to week or month to month, but it does require that the income be steady, meaning that it is likely to continue. It also must be periodic, which means that you must receive it on a regular basis whether it is weekly, monthly, semi-annually, seasonally or even annually. Examples of income that make one eligible for Chapter 13 include:
   
   
   • Regular wage or salary from your own business or even seasonal work
   • Pension or Social Security payments
   • Child support or alimony
   • Profits from selling property, especially if this is your primary business
   • Public assistance (welfare)
   • Disability or worker's compensation
   • Unemployment benefits

2. You must have disposable income, and it must be high enough so that after paying for basic living expenses, it is likely that you will have money left over to make some kind of regular (usually monthly) payment on your outstanding debts to the bankruptcy court for anywhere from three to five years.
   
   The amount the court will order you to pay depends on how much you owe, the type of debts you have, and the specific court's approach. Some debts do not legally need to be paid, and some courts will not order you to pay on those debts as long as you pay as close to 100% of the others you are legally bound to pay. Other times, you may be asked to repay every debt you have at 100% even if it takes you years and years to do it. Most courts compromise and land somewhere in the middle of these two positions.
   
   
3. Your debts cannot be too high, otherwise you will not qualify for Chapter 13 in the first place. You will not qualify for Chapter 13 if your secured debts go over $807,750. A "secured" debt is one that will cause you to lose the property if you don't make your any kind of payment to the creditor. Examples include home and car loans that, if you defaulted on them, would cause you to lose the house or the car.
   
   In addition, for you to be eligible for Chapter 13 bankruptcy, your unsecured debts cannot exceed $269,250. An "unsecured" debt is any that is not related to particular property you own, and failure to repay the debt would not entitle the creditor to repossess property. Bank credit card debts, medical and legal bills, student loans, back utility bills, and department store charges are all considered unsecured and are the most common form of debt.

Now that you know if you are eligible to file Chapter 13, here is what it can help you with. It does not completely eliminate debt, but it does allow you time to repay them. It can be used to save your house by allowing you the time to make up the payments. You may also pay any back taxes and prevent any interest from accumulating.

When filing bankruptcy, "automatic stay" goes into effect. This means that, because you are filing for bankruptcy, the federal bankruptcy court prevents creditors from calling, sending mail or employing any other means to collect their debt from you. This is helpful because you are then free to begin repaying or eliminating your debts without being bothered by creditors.

One important thing to remember is that filing Chapter 13 commits you to restrict your spending habits and therefore lead a more disciplined lifestyle. For those three to five years, you will have to have a budget approved by the bankruptcy court explaining how you plan to repay your debts and cut back your spending. You will not be allowed to spend any money on anything deemed unnecessary by the court.

The court recognizes that this kind of drastic change is difficult, and may therefore decide to take the payments out of your regular wages, which you must have in order to be eligible for Chapter 13 in the first place, remember. This is a commonplace occurrence and should help lessen the burden of making monthly payments because they are already done for you.

The evidence of your having filed for Chapter 13 will stay on your credit report for seven years from the date your papers were filed. Sometimes, the bankruptcy can remain up to ten years. After your case is over, and the three to five years have passed you start to rebuild your credit. Some courts even help you by giving you the opportunity to take money management seminars and applying for credit with local creditors.

Entering into Chapter 13 bankruptcy is an important decision and a major step in regaining control of your life. If you have any questions or would like to discuss your options, contact our office for a free case evaluation.