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Who may file chapter 13?

Posted by attorney Asaph Abrams

First, you must reside, have a domicile, a place of business, or property in the USA. Check.

  1. Now, as with chapter 7, there are certain wait periods pursuant to prior bankruptcy discharges. See 11 USC §1328(f).

a. There is a 2-year wait period (from filing date to filing date) to file a second chapter 13 after a prior chapter 13 that ended successfully in a discharge. Weird, because it’s rare that a chapter 13 discharge would be granted within 2 years. There are limitations due to repeat filings pursuant to dismissals (especially if there were dismissals within one year of your new filing).

b. There is a 4-year wait period (from filing date to filing date) to file a chapter 13 after a chapter 7 in order to get a discharge in that new chapter 13. What that means is that if you don’t wait the 4 years after a 7, you can still file the 13, but you won’t get a discharge; in other words, you’ll only get credit for what you pay into the plan and there will be no forgiveness (discharge) of the unpaid balance (that forgiveness is the general outcome in chapter 13, whereby pennies are paid on the dollar). But the discharge may not be important if, for example, you file chapter 13 in order to pay dollar-for-dollar on student loans, which are not dischargeable in bankruptcy (with rare exception).

  1. To file a chapter 13, you must have regular income. Indeed, chapter 13 is the Metamucil on the pantry shelf of Title 11.

  2. The Code then decrees that chapter 13 is: only for an individual with regular income who has (non-contingent, liquidated) unsecured debts under $360,475 and (non-contingent, unliquidated) secured debts under $1,081,400.

What does this mean? First, notice the term, “individual" as distinct from person. While railroads can be persons, individuals can only be humans. Where lies Thomas the Tank Engine, I do not know. The point, Dear Reader is that business entities cannot file chapter 13. Individual business-men and -women may file, but corporations, partnerships, et al. cannot.

Second, note the debt limits (with regard to non-contingent, liquidated debts). If your unsecured debt is $360,475 or higher, then you cannot do a chapter 13. AND/OR if your secured debt is $1,081,400 or higher, then you cannot do a chapter 13. Now, stop! Check the date of this entry. Are those figures current? They are... until April 2013, when they'll update. I like to stress: when you traverse the Big Bad Web, numbers are subject to change. The Net is a carton of milk that inevitably sours. Many sites are not updated (like the milk left before your 2-week trip), or are just plain wrong (like brand new soy milk).

So what's unsecured, and what's secured? Secured debt is guaranteed by collateral, such as your home or car; a mortgagee or car lender may presumably foreclose or repo upon default. Credit cards and many loans are presumably unsecured... though don't presume. Because Weirdness Happens. Installed-flooring may be counted as collateral. A Petco pooch purchased on credit may be claimed as security.

Yet, even if a security interest is properly perfected, it may be illusory; lenders aren't prone to strip floors or collar dogs. Which... really is a shame. If the urchins scuffed the floors, one might shift removal costs prior to placing new carpet. If one suffers an incorrigible barker and territory marker, one might happily permit its removal. Know, I don't dislike dogs; I sort of tolerate (some) of em. My reticence is not for want of affection, but from devotion to cats: I don't believe one may love one's cats, yet not share their antipathy toward dogs. That's like loving vampires, but having an affinity toward werewolves.

Some clients would cry foul at canine discrimination. But when inventorying personal property (part of the prepetition "homework," one performs), it is THEIR dog-values that range from $0 to $100. Now, in California, if your "normal household" good (including a pet) is $550 or less, then a blanket exemption (protection) applies. For values in excess of $550, one must tap a limited "wildcard" fund, usually allocated to savings and automobiles.* Personally, I would still price my cat at $1000, at the cost of some wildcard, just to not hurt his feelings.

It is not uncommon that the above debt limits are exceeded, especially for debtors with depreciated real property. After the real estate crisis, once-secured mortgages have become under- or wholly-unsecured. A second mortgage would have originally counted toward the higher (and less-likely-surpassed) secured-debt limit. With values down, a first-mortgage alone may exceed a home's worth. The second mortgage would then be entirely unsecured. In conjunction with credit cards, student loans, and other debt, the $360,475 threshold can frequently preclude chapter 13 eligibility. A decisive factor may be characterization of partially secured mortgages. According to the most recent S. District of CA case-on-point, the unsecured portion of a partially-secured mortgage counts toward the secured-debt limit. This facilitates eligibility. See In Re Munoz Case no. 09-07087-JM13 published 1-12-10 or read Newz from Munoz at:


*Applies to cases utilizing CA Code of Civ. P. section 703 only.

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