Only individuals may file for Chapter 13 bankruptcy. Corporations and partnerships may not file for Chapter 13 bankruptcy. Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as that individual has regular income greater than reasonable living expenses, has unsecured debts not exceeding a certain sum, and has secured debts not exceeding a certain sum.
To determine whether an individual is eligible for Chapter 13, the debtor’s total secured debt must be known. There are well known secured debts such as home mortgages, home equity lines of credit and car loans. These are all liens created by agreement between the debtor and the creditor that are embodied in a legal agreement.
There are several other kinds of debts that are secured by liens on the consumer’s property, sometimes without the consumer even realizing it. For instance, there are purchase money security interests, which are lien rights that the seller retains in the goods purchased when the seller finances the purchase. If the buyer discharges his or her personal liability on the debt through bankruptcy, the seller retains the right to reclaim the goods. Many credit plans give the seller a security interest in the goods purchased. Other types of secured debts are judgment liens, tax liens, and blanket security interests.
An individual cannot file under Chapter 13, or any other chapter, if during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court. Additionally, an individual cannot file under Chapter 13 if a prior bankruptcy petition was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.