Are You Eligible for Chapter 13 Bankruptcy in McHenry County, IL?

Chapter 13 bankruptcy can be the right choice for some debtors, but the law does places certain restrictions on who may file for Chapter 13. For instance, only natural persons, meaning not business, can use Chapter 13. Additionally, the filer must receive enough monthly income to fund the plan, and their debt load must fall below a certain level. Furthermore, the availability of Chapter 13 depends on whether the filer properly filed their income taxes for the past four years.

Businesses Cannot File for Chapter 13 Reorganization Bankruptcy in McHenry County

The law only makes Chapter 13 reorganizations available to people, not businesses. Instead, businesses, even sole proprietorships, must use Chapter 11 if they want to have a reorganization bankruptcy. But, business owners may still file for Chapter 13 bankruptcy protection as an individual. In most cases, the law even allows them to include their business-related debts, provided that they are personally liable for the payment of those debts

McHenry County Chapter 13 Bankruptcy - You Must Have Sufficient Disposable Income

In order for the court to approve a filer’s Chapter 13 bankruptcy, the filer must demonstrate to the court that they have enough disposable income to fund their repayment plan. This means that the filer must be able to pay off all of their priority debts, make payments on their secured debts, and still fund a repayment plan on their other debts that will satisfy the bankruptcy court.

Fortunately, the court will examine a wide array of income when determining whether the filer can afford a Chapter 13 plan. Some of the potential incomes a court will look for include

  • Salary or wages from employment
  • Self-employment income
  • Seasonal income
  • Commissions
  • Social security and pension payments
  • Workman’s comp, unemployment, or disability benefits
  • Welfare payments
  • Any support obligations stemming from a past marriage
  • Royalties, rents, and other income from the sale of property

Furthermore, in the case of a married filer, courts will count income coming from a spouse in addition to the filer’s income, even if the spouses did not jointly file for bankruptcy.

McHenry County Ch. 13 Bankruptcy - Your Debts Must Not Be Too High

The law also places certain specific limits on the maximum amount of secured and unsecured debt that a filer may have before they can no longer file for Chapter 13. The law currently limits secured debts to no more than $1,149,525. Secured debts are debts that the debtor pledged to hand over certain, specific collateral if they were unable to pay. The most common secured debts are car loans and mortgages, which require the debtor to relinquish their car or home in the event that they fail to make payments on the debt.

The law also limits the total amount of unsecured debt that a filer may have to no more than $383,175. Unsecured debts differ from secured debts in that the lender does not have the right to repossess a specific piece of property in the event that the debtor fails to make payments. These debts are fairly common and include debts like medical bills or credit card debts.

McHenry County Ch. 13 Bankruptcy - You Must Be Current on Your Income Tax Filings

The final requirement that the law places on Chapter 13 filers is the ability to prove that they filed state and federal income tax returns for the past four years. While courts may hold off on the proceedings to allow the filer to meet this requirement, they will eventually need to do it.

To receive tailored advice about your own situation regarding Chapter 13 bankruptcy, please contact Newland & Newland today. We provide support to clients in Lake County, McHenry County, Cook County, DuPage County, Crystal Lake, Arlington Heights, Barrington, Palatine, Rolling Meadows and throughout Northern Illinois.

  • Newland & Newland LLP, Attorneys, Arlington Heights, IL