California Court Discusses Eligibility for Chapter 13 Bankruptcy

Generally, individuals who file for bankruptcy will do so under either Chapter 7 or Chapter 13 of the bankruptcy code. Both Chapters impose eligibility requirements, and parties that do not meet the conditions set forth under the law may not be able to obtain relief for some or all of their debts. A key factor in establishing whether a person is eligible for chapter 13 bankruptcy is the type of debts they owe and how the debts are evaluated. Recently, a California court discussed debt calculations in chapter 13 bankruptcy matters in a case in which a creditor appealed the court’s approval of the debtor’s chapter 13 plan. If you have debts that you cannot pay, you may be eligible for relief, and it is in your best interest to speak with a seasoned California bankruptcy attorney regarding your rights.

The Underlying Facts

Reportedly, the debtor commenced a chapter 13 bankruptcy proceeding in February 2020. In her statement of financial affairs and schedules, she stated she was the principal of two companies. She listed approximately $48,000 in priority unsecured debt and $127,000 in non-priority unsecured debt, none of which was liquidated or contingent or owed to the creditor.  She listed the creditor in three different places in one of her schedules but did not indicate she owed them any specific debt amount but indicated the debts she owed the creditor was unknown.

Allegedly, she then filed her initial chapter 13 plan. The creditor filed a motion for relief of automatic stay, which the court granted, and filed a proof of claim. The chapter 13 trustee objected to the debtor’s plan, but it was confirmed. The creditor appealed, arguing that the debtor was not eligible for chapter 13 bankruptcy because the debt she owed the creditor put her over the statutory limit.

Chapter 13 Eligibility

Section 109(e) of the bankruptcy code determines who is eligible to file for chapter 13 bankruptcy. Specifically, it states that only a person with regular income who owes debts that exceed the statutory amounts may be debtors under chapter 13. Section 109(e) sets forth statutory limits for both liquidated, non-contingent debts that are secured and unsecured. Notably, the law expressly excludes un-liquidated and contingent debts from the eligibility calculations.

Debts are deemed contingent if one or more extrinsic occurrences must happen before the debtor is compelled to pay, and they are considered un-liquidated if the amount owed is not readily determinable. The court explained that ready determination hinges on the difference between a simple hearing to determine the amount of the debt and an extended and contested hearing in which significant evidence is needed to establish the amount owed. The amount of debt is determined at the date the petition is filed. In the subject case, the appellate court found that the lower court did not err in relying on the debtor’s schedule to determine her chapter 13 eligibility, or the amount and nature of the debts she owed. Thus, the creditor’s appeal was denied.

Meet with a Trusted California Bankruptcy Attorney

Many people who struggle to pay their debts are eligible for relief via chapter 7 or 13 bankruptcy. If you are unable to meet your debt obligations, it is advisable to speak with a bankruptcy lawyer to discuss your rights. Attorney Matthew D. Roy can assess your case and advise you of your options for regaining financial control.  You can contact Mr. Roy via the online form or by calling (916) 361-6028 to set up a meeting.