Chapter 13 of the Bankruptcy Code gives debtors a powerful set of alternatives to filing in Chapter 7. There are as many reasons for choosing Chapter 13 as there are debtors who file it. Many have incomes that are too high for the means test. Others have too much home equity that they do not want to lose in Chapter 7. Some want to take advantage of the auto-loan cram-down option, and still others want to strip previously discharged second and subordinate mortgage liens. The question that many debtors ask their Las Vegas bankruptcy attorney is “What if my only income is xxxxxx? Am I still eligible?” or, “What if I’m unemployed?”
The initial answer is to look to the Bankruptcy Code, which states in 11 U.S.C. § 109(e), “Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts … may be a debtor under chapter 13 of this title.” What does “regular income” mean? In § 101(29) it states, “Income [that] is sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13 of this title, other than a stockbroker or a commodity broker.”
Here are a few examples:
- The most obvious example of “regular income” is wages for employment because the debtor can show the bankruptcy court a history of wage payments and a reasonable expectations of future ones that will cover the repayment plan. In fact, in previous versions of the Bankruptcy Code, Chapter 13 was called the “wage-earners plan” because it excluded all other types of income. Now, it’s named “Adjustment of debts of an individual with regular income.”
- People who are self-employed or run unincorporated businesses can file in Chapter 13, so long as they can show that the income stream is stable. This provides debtors who own businesses with an alternative to filing in Chapter 11, if their debts are within the proscribed limits.
- Importantly, the change to the law makes it possible for people who are not employed to use Chapter 13. For instance, someone who derives income from investments such as stocks, bonds, or rents can claim the income is “regular” under the Bankruptcy Code.
- A person who is not employed but is married to someone who is can claim his or her spouse’s income as regular. The same goes for income received by family members.
- Alimony, welfare, disability, Social Security, and worker’s compensation qualify. Child support does too, but it is not counted as “disposable income” for the purposes of the repayment plan.
- Income possible from selling assets is not considered regular, so there is no shoehorning a Chapter 13 bankruptcy into Chapter 7.
- The only questionable situation is when married individuals also happen to be business partners. Those in the legal field are more concerned about the “individual” within the phrase “individual with regular income.” Partnerships are not individuals, which can lead to conflicts that must be determined on a case-by-case basis.
Most of the time what counts as a regular income is self-evident, but knowing the details is why it’s important to hire an experienced Las Vegas bankruptcy lawyer to handle your case.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.