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Incarcerated man denied Chapter 13 bankruptcy protection

Michigan residents may have heard about a recent Illinois bankruptcy court ruling involving a man who wanted to file for chapter 13 bankruptcy while in jail. The court ruled that a debtor’s own income must be used when determining whether that person is eligible to file for chapter 13. The fact that the man’s parents were willing to contribute to the repayment plan was not enough to avoid a dismissal in the case.

The man was in jail after being convicted of aggravated DUI, and he was making $14 a month according to the Illinois Department of Corrections. This was not enough to fund a plan, but the man’s parents agreed to contribute $25 a month over a 60-month repayment period. It was found that the offer to make payments was gratuitous in nature, which means that it couldn’t be considered regular income.

This distinction is significant because only individuals who make sufficient, regular incomes are qualified to restructure debt with a Chapter 13 filing. While the man was not eligible for a reorganization bankruptcy, it is possible that the case could be converted to a chapter 7 bankruptcy, where a person’s nonexempt assets are liquidated and used to repay existing debts.

Those who are seeking debt relief may wish to speak with bankruptcy attorneys. Lawyers may advise their clients that it is possible to have their debts discharged immediately or after a repayment period of three or five years. Debtors may also receive an automatic stay from creditor collection efforts such as lawsuits or wage garnishments. A lawyer may be able to advise clients about the eligibility guidelines for both chapter 7 and chapter 13 bankruptcies as well as any steps that should be taken prior to filing.