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Chapter 13 bankruptcy is not for everyone

| Oct 9, 2020 | Bankruptcy |

Unlike Chapter 7 bankruptcy, which requires a debtor to sell off items of property in order to repay their creditors, Chapter 13 bankruptcy has a very different structure. It uses the income that a debtor has for disposable purposes to create a repayment plan for their creditors. A repayment plan must be approved in order for a debtor to be granted the protections of the bankruptcy process, and an Illinois-based bankruptcy attorney can advise individuals on how best to meet the requirements of their filings.

Like Chapter 7 bankruptcy, however, there are limitations on who may file for Chapter 13 bankruptcy. Some of the requirements of filing will be discussed in this post. Readers should not, though, consider this post legal advice on any bankruptcy-related topic.

Who can file for Chapter 13 bankruptcy?

One requirement that debtors must meet to file for Chapter 13 bankruptcy is that they must be a natural person. Business entities cannot file for Chapter 13 bankruptcy, which leaves only individuals and individuals filing with their spouses who may use Chapter 13 bankruptcy to alleviate their debts. Similarly, only individuals who have sufficient income to restructure and repay creditors will be allowed to establish Chapter 13 repayment plans.

Chapter 13 bankruptcy has other filing requirements. Individuals cannot have filed within certain time-based parameters before seeking Chapter 13 protections, and they must fulfill requirements like credit counseling to avail themselves to the bankruptcy process. Being up-to-date on one’s tax filings is required to use Chapter 13 to better one’s financial situation.

What to do before filing for bankruptcy

Bankruptcy is an important way for some individuals to take control of their debts and move their lives forward. Due to the limitations that the law puts on who may file, it is important that debtors understand exactly what they can do and when they are eligible to start bankruptcy proceedings. Not everyone knows this information on their own, and as such it is useful for debtors to work with bankruptcy attorneys to ensure they follow the many rules of the process.