If you are an individual with heavy debt who does not qualify for a consolidation loan, filing Chapter 13 bankruptcy may be a good choice for you. It works similarly to a consolidation loan in that you make only one payment a month. Your bankruptcy trustee then distributes each payment among all your creditors.
There are many potential advantages to filing Chapter 13. It prevents direct contact between you and your creditors and can help prevent foreclosure on your home. Forgiveness of any debts that remain following your repayment period is fairly common. However, before you can file Chapter 13 bankruptcy, you must fulfill certain eligibility requirements.
According to United States Courts, all individuals wishing to file under any chapter of the Bankruptcy Code must first complete credit counseling within 180 days. However, there are certain circumstances in which this requirement does not apply. For example, there may not be approved agencies to provide the necessary counseling in your area, or it may be an emergency situation.
Chapter 13 is only intended to provide debt relief to individuals. It is not for businesses, such as partnerships or corporations. However, you can file Chapter 13 if you operate a business as a sole proprietor because there is no legal distinction between you and the business.
The amount of debt that you owe also affects your ability to file under Chapter 13. Secured debts, e.g., mortgages and car loans, must be less than $1,184,200. Additionally, you cannot owe more than $394,725 in unsecured debts, which include medical expenses and credit card bills.
If you had a previous petition dismissed within the last six months, you cannot file for Chapter 13 bankruptcy.