Michigan Bankruptcy Lawyer

I receive many calls from potential clients who say, straight off, that they want to file a Chapter 13 bankruptcy. Often, as it turns out, these folks are either not actually eligible for Chapter 13 under the specific requirements of the Bankruptcy Code or it is simply not in their best interest. As the question of whether it is the best tool in bankruptcy for a consumer to make a realistic fresh start, that is a very situation-specific discussion, so I will discuss only the question of basic eligibility here.

The threshold criteria for Chapter 13 eligibility are fairly simple.

First, you have to meet the definition of an eligible debtor as described in Section 109(e) of the US Bankruptcy Code. To be an “eligible debtor,” you must:

• Be an individual (i.e., not a business) or an individual and spouse
• With regular income
• Owing less than $336,900 (as of this writing) in debt that is non-contingent, liquidated, and unsecured
• Owing less $1,010,650 (as of this writing) in debt that is non-contingent, liquidated, and secured 

 ”Non-contingent” debt is debt that is not dependent upon some future event happening in order to exist. This future even may never happen, so the debt cannot be realistically calculated at the present time. “Liquidated” debt is debt that is of an agreed-upon and fixed amount. A legal claim that has not been fully adjudicated and awarded is not liquidated, for example. “Unsecured” debt is debt such as credit-card debt that is not guaranteed by the debtor with collateral or other property, while “secured” debt is debt, such as a car-loan or home mortgage, that is guaranteed by collateral or property (usually the item in question itself).

The threshold for qualifying as having “regular income” is fairly low. In the Section 101(30) of the Bankruptcy Code, a peson with “regular income” is described as having “… income sufficiently stable and regular to enable [that person] to make payments under a plan under Chapter 13.” In other words, you have to be able to guarantee that you can fulfill the terms of the payment plan that is submitted with your Chapter 13 bankruptcy petition. The Code’s definition is intended to include Social Security, welfare, pension, and alimony recipients, among other non-wage-earning debtors. Simply, you must prove that you have an income of some sort and that it is regular enough to support a 3- or 5-year plan.

As to the debt limitations, there are a few more complications here. First, you must determine whether each individual debt you have is “secured” or “unsecured.” In most cases, this is simple enough, but it becomes complicated in such cases as when a secured debt is under-secured to the extent that it may actually be classified as unsecured or when a debt held by the debtor wishing to file bankruptcy is actually secured through property held or owned by someone else. Each debt must also, as indicated above, be individually determined to be either liquidated or un-liquidated and contingent or non-contingent. Each of these determinations carries its own questions that are best explored with the help of an attorney.

These are the basic points of eligibility for a Chapter 13 bankruptcy.  However, any previous bankruptcies you may have filed may also impact your eligibility. If you have never filed bankruptcy before, there is no problem, naturally. But, if you have filed for and received a Chapter 7 bankruptcy discharge within 4 years before you would file the new Chapter 13 petition, you are not eligible. Likewise, if you have filed for and received a Chapter 13 discharge within 2 years of the date you would file the new Chapter 13 petition, you are not eligible.

If you have any questions about whether or not you’re eligible for Chapter 13 or Chapter 7 bankruptcy, contact me to schedule a free, initial consultation.