Eligibility for Chapter 13 Bankruptcy in Michigan
The threshold criteria for Chapter 13 bankruptcy eligibility are fairly simple:
Chapter 13 Bankruptcy: You Must Be An "Eligible Debtor"
To file a Chapter 13 Bankruptcy in Michigan or elsewhere, 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 $360,475 (as of this writing) in debt that is non-contingent, liquidated, and unsecured
- Owing less $1,081,400 (as of this writing) in debt that is non-contingent, liquidated, and secured
Chapter 13 Bankruptcy: Regular Income
The threshold for qualifying as having "regular income" is fairly low. In the Section 101(30) of the Bankruptcy Code, a person 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, to file a Chapter 13 bankruptcy, 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.
Chapter 13 Bankruptcy: Debt Limits
There is no real minimum amount of debt necessary to file a Chapter 7 or a Chapter 13 bankruptcy, but there are limits to the amount of debt you may have in a Chapter 13 bankruptcy. (Individuals who do not qualify under the Chapter 7 means test for a Chapter 7 and exceed the debt limitations for a Chapter 13 bankruptcy may need to look at the option of an individual Chapter 11 bankruptcy.) Chapter 13 Bankruptcy Debt Limits: Secured vs. Unsecured Debt Regarding the Chapter 13 bankruptcy debt limits, the first question is 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. Whether, say, a home mortgage debt is classifiable as a secured or unsecured debt is a very local determination. Here in the Eastern District of Michigan, a mortgage debt that is being stripped off and treated as an unsecured debt in a Chapter 13 bankruptcy (that is—discharged in full) because the value of the home serving as collateral for that loan and for a primary mortgage is sufficient only to "secure" the primary mortgage is still classified as "secured" as of the time of the filing of the Chapter 13 bankruptcy plan. This is not the same in every jurisdiction in the United States. Chapter 13 Bankruptcy Debt Limits: Unliquidated or Contingent Debt In a Chapter 13 bankruptcy, each debt must also, as indicated above, be individually determined to be either liquidated or un-liquidated and contingent or non-contingent. "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). Resolving the questions of unsecured vs. secured debt and unliquidated vs. liquidated vs. contingent debt can dramatically affect your ability to file a Chapter 13 bankruptcy.
Chapter 13 Bankruptcy: Prior Bankruptcies
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 for a discharge. 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 for a discharge in a Chapter 13 bankruptcy. HOWEVER, you may still file a Chapter 13 bankruptcy even if a full discharge is not available! In some circumstances, such as regarding an inability to make huge monthly payments on otherwise non-dischargeable student loan debt and the ability of Chapter 13 bankruptcy to force a creditor to accept only what you can afford to pay on a monthly basis, a Chapter 13 bankruptcy may still be an excellent course of action, even if a full discharge of debt at the end of the Chapter 13 bankruptcy payment plan is not available. If you are a Michigan resident and are considering filing for bankruptcy, contact us at (866) 674-2317 or click the button belwo to schedule a free, initial consultation with our Michigan bankruptcy attorney, John M. Hilla. Schedule a Free Consultation