For those not able to pass the Chapter 7 means test, Chapter 13 is the next best option and is effective in repaying creditors and discharging unsecured debt. There are some entities that are not eligible for Chapter 13 bankruptcy however, and we’ll cover those here today.
Businesses can’t file for Chapter 13 bankruptcy and must instead use Chapter 11 bankruptcy which is usually more complex and expensive. Even if you are a sole proprietorship, you can’t utilize Chapter 13 bankruptcy for debt relief of your business.
Individuals who don’t have enough disposal income, are also not eligible for Chapter 13 bankruptcy. When setting up your repayment plan under a Chapter 13 bankruptcy filing, the bankruptcy court and trustee subtract the average income over the previous 6 months of the filing from your typical living expenses. What is left is called disposable income and must be used to pay back creditors. If you don’t have enough income from wages, pension payments, social security, or disability, then you won’t be able to file Chapter 13 bankruptcy.
Individuals that haven’t filed their income tax returns regularly for the previous four years won’t be able to file Chapter 13 bankruptcy either. Your federal and/or state tax returns for the past four years are part of the paperwork the bankruptcy trustee will ask for, and if you can’t produce them, then your Chapter 13 bankruptcy case will be dismissed.
Lastly, individuals with secured debt over $1,184,200 or unsecured debt over $395,725 aren’t eligible to file for Chapter 13 bankruptcy either.
If you fall into any of the categories it doesn’t necessarily mean you don’t have other debt relief options. There may also be exemptions or extenuating circumstances that your bankruptcy lawyer in Houston can recognize that will allow you to file Chapter 13 bankruptcy. Make an initial appointment with a bankruptcy lawyer in your area if you are considering this form of debt relief to find out what your specific options are.