Chapter 13 bankruptcy is generally not available for business entities. However, those who are sole proprietors may be able to file for Chapter 13 bankruptcy to save their small business. Chapter 13 bankruptcy allows an individual with regular income to develop a payment plan for all or part of their debts.
The Rolesville business bankruptcy lawyers at Bradford Law Offices has more than 25 years of experience in bankruptcy law. In your initial meeting, you can explain your situation, and we can discuss your options. Call us at (919) 758-8879 or contact us online.
What Is Bankruptcy?
Individuals or businesses may file for bankruptcy when they cannot pay their debts or obligations. Bankruptcy gives an individual or business a fresh start by forgiving all or part of their debts. The bankruptcy laws are structured to attempt to give creditors some compensation while relieving the debtor from unmanageable debt.
Pros and Cons of Chapter 13 Bankruptcy
Chapter 13 bankruptcy has several benefits over Chapter 7 bankruptcy, which requires liquidating your assets. One of the most significant advantages of Chapter 13 is that it provides individuals the opportunity to keep their homes and avoid potential foreclosure. Additionally, Chapter 13 allows individuals to reschedule most of their debt payments, extending them over the life of the Chapter 13 repayment plan, lowering payments, and even protecting co-signers.
Although Chapter 13 bankruptcy will allow someone financial “breathing room,” having one on your credit report will make it more difficult to obtain credit in the future. Chapter 13 bankruptcy remains on someone’s credit reports for seven years.
Who Can File Chapter 13 Bankruptcy?
Individuals who are self-employed or operating an unincorporated business are eligible for Chapter 13 bankruptcy if they meet the secured and unsecured business debt limits. An unincorporated business is a business that has not legally been registered as a business with a state authority. For example, if your business is registered in North Carolina or another state, your business likely will not be eligible for Chapter 13 bankruptcy.
To obtain a Chapter 13 bankruptcy, an individual cannot have secured and unsecured debts that exceed a certain amount. On June 21, 2022, President Biden signed the Bankruptcy Threshold Adjustment and Technical Corrections Act. The Act increased the debt limits to no more than $465,275 in unsecured debts and $1,395,875 in secured debts. These new limits are in effect until March 31, 2025.
Unsecured debt has no collateral, meaning there is no property that stands as security for the debt. Most debts in the United States are unsecured, such as credit cards. A secured debt allows a creditor to take the collateral pledged to get the loan. For example, when someone buys a house and takes out a mortgage, they generally take out a secured loan that allows the bank to foreclose on the home if the mortgage payments are not made for a specific amount of time.
How Often Can Chapter 13 Bankruptcy Be Filed?
Generally, there is no limit on how many times a Chapter 13 bankruptcy can be filed. Instead, there is a waiting period after obtaining a Chapter 13 bankruptcy discharge before you can file another.
If you received a discharge in a previous Chapter 13 bankruptcy, you must wait two years from the date of filing your last Chapter 13 to file another Chapter 13 bankruptcy. However, if you received a discharge in a Chapter 7 bankruptcy, you usually are required to wait four years to file a Chapter 13 bankruptcy.
Chapter 13 Bankruptcy Process
Some steps are required before someone can file for Chapter 13 bankruptcy. For example, before someone can file for bankruptcy, they must complete pre-bankruptcy credit counseling from an agency approved by the Bankruptcy Administration in North Carolina. Once the pre-bankruptcy credit counseling course is completed, an individual may usually file for Chapter 13 bankruptcy within six months.
Once the course is completed, the filer is required to fill out certain forms before the North Carolina Bankruptcy Court will allow them to enter a repayment plan. The forms require the filer to list all their property, debts, income, expenses, and financial transactions so the court can evaluate them. In addition, if someone is married, the filer must provide income and expense information for their non-filing spouse.
Upon filing for bankruptcy in North Carolina, a filer must complete a pre-discharge financial management course with an agency approved by the Bankruptcy Administration in North Carolina to qualify for discharge in your bankruptcy case.
Chapter 13 Bankruptcy Plan and Confirmation Hearing
Unless otherwise provided by the court, the filer usually must file a repayment plan with their petition for Chapter 13 bankruptcy or within 14 days of filing their petition for Chapter 13 bankruptcy. The plan should provide for fixed payments to be made regularly, such as weekly, bi-weekly, or monthly. The payment plan may not exceed five years.
Between 21 and 60 days after the bankruptcy petition is filed, the person filing bankruptcy is required to attend a meeting of creditors. The trustee assigned to the case conducts the meeting. The creditors and debtor will discuss the repayment plan.
Within 45 days of meeting with creditors, the judge should hold a confirmation hearing to determine if the plan meets the standards for confirmation. If the judge confirms the plan, the filer will be required to make payments according to that payment plan. If the judge declines the plan, the filer may seek to submit a modified plan or convert to a Chapter 7 liquidation bankruptcy. In some cases, the judge may also dismiss the case.
Chapter 13 Bankruptcy Hardship Discharge
After confirmation of the payment plan, new circumstances may make it difficult or impossible for a debtor to complete it. If that is the case, the debtor may petition the court for a hardship discharge. Generally, a hardship discharge is only available if: (1) the inability to complete the plan is beyond the debtor’s control; (2) creditors have received as much, or more than they would have in a Chapter 7 bankruptcy; and (3) modification of the plan is impossible.
Contact Us Today
If you are a sole proprietor or unincorporated business in North Carolina and have been struggling to keep your head above water with your finances despite a regular income, Chapter 13 bankruptcy may be right for you. Contact the Rolesville business bankruptcy attorney of Bradford Law Offices today to determine whether Chapter 13 bankruptcy is the right move. You can contact us for a confidential consultation at (919) 758-8879 or online.