Section 109(e) of the Bankruptcy Code sets three basic eligibility requirements for a Chapter 13 debtor:
- The debtor must be an “individual.” For bankruptcy purposes, an individual is a subset of a person, and is distinct from a partnership or a corporation. See 11 U.S.C. §101(41). Only real live human beings (“individuals”) are allowed to file Chapter 13 bankruptcy.
- The debtor must not exceed the Chapter 13 debt limits. The last time these limits were adjusted was on April 1, 2013, and are currently limited to: unsecured debts less than $383,175, and secured debts less than $1,149,525.
- The debtor must have a regular income.
Section 101(30) of the Bankruptcy Code defines “regular income” as “income sufficiently stable and regular . . . to make payments under a plan.” Courts have recognized that Congress intended a liberal interpretation of “regular income.” The test for regular income is not the type or source of income, but rather its regularity and stability. Debtors who do not have sufficient income to pay ordinary living expenses have been found to lack the regular income to be eligible to file a Chapter 13. Some examples held to qualify as regular income include:
- Social Security income
- Income from employment
- Business income
- Spousal support income
- Child support income
- Contributions from family members
Under the original Bankruptcy Act, Chapter 13 plans were restricted to wage earners, and sometimes a Chapter 13 case is still referred to as a “wage earner” bankruptcy. This limitation denied Chapter 13 relief to some individuals with regular income, such as small business owners or social welfare recipients, because their incomes did not come from wages, salary, or commissions. Congress modified the Bankruptcy Code so that individuals with “regular income” could qualify for Chapter 13 bankruptcy relief. Congress made it clear that “[e]ven individuals whose primary income is from investments, pensions, social security or welfare may use chapter 13 if their income is sufficiently stable and regular.” H.Rep. No. 95-595, 95th Cong., 1st Sess. 119, reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6080.
If you have a regular income and need debt relief, you may qualify for Chapter 13 bankruptcy. A Chapter 13 bankruptcy can give you an opportunity to pay whatever you can afford to creditors over three to five years, under the protection of the bankruptcy court. At the end of the case, many debts that remain are discharged forever. Speak with an experienced bankruptcy attorney for more information on how Chapter 13 and the federal bankruptcy laws can help you.