The benefit of this chapter is that you repay some of your debts—but usually not all—over the course of a three- to five-year repayment plan. But before the court approves your plan, you must fill out the official bankruptcy paperwork and prove that you are:
- up-to-date on tax filings
- within debt amount limitations
- employed and have enough income to cover the required monthly payment, and
- an individual, not a business (however, all financial aspects of a sole proprietor’s business get included in the bankruptcy).
Your Income Tax Filings Must Be Current
To file for Chapter 13, you will have to submit proof that you filed your federal and state income tax returns for the four tax years prior to your bankruptcy filing date. If you need some time to get current on your filings, the court can postpone the proceedings (but you don’t want to count on this). Ultimately, however, if you don’t produce your returns or transcripts of the returns for those four years, your Chapter 13 case will be dismissed.
You Must Have Sufficient Disposable Income
To qualify for Chapter 13, you will have to show the bankruptcy court that you will have enough income, after subtracting certain allowed expenses and required payments on secured debts (such as a car loan or mortgage), to meet your repayment obligations. Your plan must pay back certain debts in full, or the judge will not confirm (approve) it and allow you to proceed. (For more information, see The Chapter 13 Bankruptcy Repayment Plan. )
You can use the income from the following sources to fund a Chapter 13 plan:
- regular wages or salary
- income from self-employment
- wages from seasonal work
- commissions from sales or other work
- pension payments
- Social Security benefits
- disability or workers’ compensation benefits
- unemployment benefits, strike benefits, and the like
- public benefits (welfare payments)
- child support or alimony you receive
- royalties and rents, and
- proceeds from selling property, especially if selling property is part of your primary business property.
If you are married, your income does not necessarily have to be “yours.” A nonworking spouse can file alone and use money from a working spouse as a source of income. And an unemployed spouse can file jointly with a working spouse.
Businesses Not Allowed in Chapter 13 Bankruptcy
A business cannot file for Chapter 13 bankruptcy in the name of that business. Businesses are steered toward Chapter 11 bankruptcy when they need help reorganizing their debts. (An exception exists, however: Although a sole proprietor cannot file in the name of the business, both business and personal debts are the responsibility of the individual, and therefore, are included in the bankruptcy filing. Therefore, Chapter 13 can effectively help reorganize a sole proprietor’s business.)
You can, however, file for Chapter 13 bankruptcy as an individual even if you own a business. You’ll include business-related debts for which you are personally liable in your Chapter 13 bankruptcy case. But, the business will remain liable for the debt. (Again, the result is different if you’re a sole proprietor—both the individual and business debt liability will be handled by the bankruptcy.)
Call Sam today to learn more about Chapter 13 Bankruptcy (318) 322-7655! We’ll discuss your options during a FREE initial consultation.