Chapter 13 Bankruptcy

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a great tool to use when trying to save a home from foreclosure. The chapter 13 bankruptcy is also known as the “wage earners bankruptcy.”  In a chapter 13 bankruptcy a debtor makes a monthly payment to the chapter 13 trustee over a period of three or five years, and the payments are applied to repayment of the debts.  All the debts of the debtors that are listed in the petition are discharged at the end of the payment plan.

Eligibility for Chapter 13 Bankruptcy

Section 109(e) of the Bankruptcy Code provides that to be a chapter 13 debtor, the debtor must: 1) Be an individual with regular income or an individual with regular income in that individual’s spouse; 2) Owe non-contingent, liquidated, unsecured debts of less than $307,675 on the date of filing; and 3) Owe non-contingent, liquidated, secured debts of less than $922,975 on that date, 11 U.S.C. §109.

What is an Individual with Regular Income?

The Bankruptcy Code defines an individual with regular income as “an individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan in chapter 13,” 11 U.S.C §101(30). Most courts take a liberal view of what constitutes an individual with regular income. Courts have found that regular payments from ex-spouses, friends, and relatives constitute regular income. Additionally, people who receive public benefits, alimony, pensions, and small business owners are eligible to be a chapter 13 debtor.

Debt Limitations in Chapter 13 Bankruptcy

As noted earlier, a chapter 13 bankruptcy debtor must fit within certain debt limitations. For example, a debtor must have secured debts of less than $922, 975 on the day of filing. An individual or small business may get around this requirement by arguing that only the allowed secured claim (actual value of the collateral) should be considered against the limit on secured debts. For instance, if a debtor has secured debts equaling $925,000 on various pieces of collateral, but the actual value of those pieces of collateral is $920,000 (so all the collateral is over secured), the debtor may argue that the unsecured portion of the claim (the amount of the claim that exceeds the total value of the collateral) should be considered against the limit on unsecured debts rather than secured debts.

Bankruptcy or Other Debt Issues?

The Kepple Law Group is highly knowledgeable in bankruptcy matters and can advise clients in all aspects of bankruptcy proceedings.

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