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Not everyone eligible for Chapter 13 bankruptcy

Texans considering bankruptcy should understand that there are different chapters under which a case may be filed. Each chapter has different effects and requirements, however, and not everyone is eligible.

A Delaware case illustrates that not all debtors may be eligible for Chapter 13 relief. In that case, a couple had originally filed a Chapter 7 petition. Under Chapter 7, the trustee will liquidate certain non-exempt assets in order to pay off the creditors. The couple owned a property that had been damaged in a fire and which had a mortgage and a mechanic's lien against it. The trustee initiated sales proceedings, and the secondary lien holder offered to purchase the property for a little more than the primary mortgage balance.

The couple filed a motion to convert their Chapter 7 petition into a Chapter 13 bankruptcy petition instead. The court denied the motion because the court said the couple had not proved they had income. Under Chapter 13 bankruptcy, people make payments pursuant to a court-approved repayment plan that lasts for a period of from three to five years, and they are thus required to have a regular source of income. If they don't, they will not meet the definition of a debtor under that particular chapter.

People who want to file for bankruptcy may want to speak with a bankruptcy lawyer about the different chapters and filing options. The lawyer can outline the various eligibility and other requirements. Legal counsel may also explain how the different chapters work and which one might provide the best debt relief for a particular client's set of circumstances.

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