Chapter 13 bankruptcy provides powerful debt relief for those who can afford to pay something toward their debts. Chapter 13 provides debt relief tools that are unavailable in Chapter 7, including the ability to strip off junior liens from real estate and to cram down auto loans to a vehicle’s current fair market value in certain circumstances. Chapter 13 provides debt relief to many who could not or should not file Chapter 7. Perhaps the debtor has too much equity in a home which would lead to its seizure in Chapter 7. Or, perhaps the debtor has filed another Chapter of bankruptcy too recently to qualify for any other Chapter.
Unlike Chapter 7, however, Chapter 13 Bankruptcy means entering into a repayment plan with the Court whereby the debtor pays back some percentage of her debt back to her creditors over a three or five year period. In fact, many Chapter 13 debtors are able to obtain a discharge of all or nearly all of their unsecured debt. But, given that Chapter 13 involves, at least in theory, repaying some of your debt, is it possible to get a Chapter 13 plan confirmed by the Bankruptcy Court if you’re not employed? I am frequently confronted with this question in our San Jose bankruptcy practice.
Bankruptcy Code §109(d) requires that, to be eligible for Chapter 13 relief, a debtor must be an “individual with regular income” or file a joint case under Code §303 with a spouse who is an individual with regular income. Thus, in a joint case, both spouses are eligible to be Chapter 13 debtors even if only one has income.
So who exactly is a person with “regular income?” The Bankruptcy Code describes it as meaning an individual “whose income is sufficiently stable and regular to enable such individual to make payments under a Plan in Chapter 13.” So based on this definition, it isn’t absolutely necessary that the Chapter 13 bankruptcy debtor is working, but he does need to prove to the court that he has some form of income that is stable and regular.
But how can the debtor prove this to a Bay Area Bankruptcy Court? Forms of income that have been satisfactory to the court in previous cases include things such as welfare payments, worker’s compensation, social security benefits, disability income, alimony or child support, pensions or retirement benefits, and earnings from investments or trusts.
If the Chapter 13 bankruptcy debtor has a spouse who is not filing with her, their income can also be counted as “regular income.” Additionally, if she receives regular support from relatives such as parents or grandparents, and it can be established with the court that this is “stable and regular,” and will continue to remain so for the duration of her bankruptcy, then this also may be acceptable to the court.
What if the debtor has a lot of assets, and plans to fund his repayment plan by selling some of these assets? In general, courts have been reluctant to permit a Chapter 13 bankruptcy debtor to fund a plan in this manner due to the uncertainty of the sale, and most bankruptcy courts will not view the uncertain proceeds from the liquidation of assets as meeting the requirement of stable and regular income.
However, in all of these instances, it’s not enough that the debtor is receiving income from such sources, however varied. The Chapter 13 bankruptcy debtor must show that not only that she is receiving income, but that she is receiving sufficient income to cover not just her regular living expenses, but also the Chapter 13 plan payments as well.
If you are considering filing Chapter 13 bankruptcy in San Jose or anywhere in the Bay Area, it is critical that you get the advice of a qualified bankruptcy attorney about your situation. Contact us for a free consultation to learn whether Chapter 13 bankruptcy will offer you the best relief from your debts.
