Not every person can file a Chapter 13 bankruptcy, and even if you qualify, it might not be the best financial solution for you. When considering bankruptcy, you have several options, and once you choose a bankruptcy path, there are still many details to consider. That's why it's important to consult with a legal professional before you file a bankruptcy petition. Your choices could determine what you lose and what benefits you gain during a bankruptcy.
To file for Chapter 13 bankruptcy, which is also known as a personal debt reorganization plan, you must be an individual or a couple. Businesses can't file for this type of bankruptcy, although they might be able to opt for Chapter 11.
Your debts and income must be within certain parameters to successfully file a Chapter 13 petition. First, Chapter 13 is not allowed if you have more than $336,900 in debts that are unsecured and more than $1,010,650 in secured debts, which could include mortgages and vehicle loans. These debt limits are adjusted every three years, and might not be the same when you attempt to file your bankruptcy, which is another reason to consult a professional.
You also have to be able to show that you have enough income to make the payments proposed in your Chapter 13 plan. Other requirements for filing a Chapter 13 bankruptcy include completing credit counseling according to court requirements, filing all your income tax returns beforehand and creating a plan that pays back all required debts such as priority debts associated with taxes.
If you are dealing with a debt crisis, Chapter 13 might be a way to recover while making payments on your obligations. Chapter 13 usually reduces the amount you pay unsecured creditors in total, making it possible to repay debts over three to five years while having some amounts discharged.
Source: FindLaw, "Who Can File for Chapter 13 Bankruptcy?," accessed July 13, 2016