One option for New York residents who are having trouble repaying their debts is filing for bankruptcy under Chapter 13. This allows them to retain their property while repaying lenders over a three- to five-year plan that is approved by the court. However, the debtors must meet strict requirements to file under this chapter.
Chapter 13 is intended for personal bankruptcy, so only individuals or spouses can file claims. Corporations, commodity brokers and stockbrokers are ineligible. However, business owners can declare Chapter 13 individually if their business is a sole proprietorship or with their business partners as long as they only file for the debts for which they are responsible.
The debtors must have filed their state and federal income tax returns for the prior four years and provide a copy or transcript of their most recent federal return with the trustee. They also have to complete credit counseling a minimum of 180 days before filing and include a certificate of completion with the court. If the counselors created a repayment plan for them, they need to provide a copy of this as well.
As part of the current Chapter 13 requirements, the debtors must not owe more than $383,175 in unsecured debts such as medical and credit card bills or more than $1,149,525 in secured debts such as home or car loans. However, these limits are adjusted every three years for inflation. The debtors must also make enough money to repay their debts and to pay for the trustee’s commission and for expenses. The declared income may include salary and wages, self-employment earnings, unemployment and Social Security benefits, and spousal income, even if the debtors do not file jointly with their spouses.
The court-approved debt repayment plan that all Chapter 13 filers must submit has to fully pay all priority and secured debts during the allotted time. Debtors often work with experienced bankruptcy lawyers in developing and submitting a proposed plan.