Key qualifications for Chapter 13 bankruptcy

Filing for bankruptcy is one of the most important decisions that some individuals may ever make. When an individual or business is in dire need of debt relief, bankruptcy can almost immediately alleviate the burden. For individuals who decide bankruptcy is right for them, deciding whether to file for Chapter 7 or Chapter 13 can be crucial.

There are many key differences between these two types of personal bankruptcy, but the most well-known is likely how each one handles existing debts. Under Chapter 7, many of an individual's qualifying debts are eliminated. Under Chapter 13, an individual agrees to a repayment plan; at the end of the repayment period, many of the qualifying debts are eliminated. Chapter 13 presents many advantages, such as the ability to rebuild a history of solid payments to creditors under the plan. Before filing for Chapter 13, though, a person must meet several important qualifications.

A person filing for Chapter 13 must not have declared either type of bankruptcy for a certain amount of time. Generally, the individual must not have filed for Chapter 13 within the prior two years or for Chapter 7 within the prior four years. In addition, if a person has a prior bankruptcy case that was dismissed for certain reasons within the past 180 days, he or she also will be ineligible to file for Chapter 13 bankruptcy. Would-be filers must undergo required credit counseling; an experienced bankruptcy attorney can fully explain this requirement and what filers must do in order to receive the proper counseling.

Those filing for Chapter 13 must be able to demonstrate that they have enough income to repay their debts under a payment plan. Moreover, the person's debts can't be too sizable. If an individual has over $336,900 in non-secured debts and over $1,010,650 in secured debts, then he or she is likely to be unable to file for Chapter 13. These limits are adjusted every few years for inflation, so they may go up or down in the future.

Other requirements for Chapter 13 bankruptcy include the debtor's successful filing of all income tax returns during the past four years and being an individual, not a business. Finally, one of the most crucial requirements is that the repayment plan address all debts that must be paid in full. While not every type of debt under Chapter 13 must be fully repaid, some must be, such as tax liens, child support and alimony payments, judicial liens and non-dischargeable taxes.

Source: FindLaw, "Who can file for Chapter 13 bankruptcy?" accessed Nov. 9, 2014

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