If you’re struggling under the weight of unmanageable debt, you might wonder, “Am I eligible for bankruptcy?” Most individuals are eligible to file for consumer bankruptcy under either Chapter 7 or Chapter 13 of the Bankruptcy Code. To learn which chapter might be a better choice for you, schedule a consultation with the Law Offices of Craig L. Cook’s bankruptcy team.
Am I Eligible for Bankruptcy?
In general, almost everyone is able to file for bankruptcy. However, you may not qualify for all of the different bankruptcy types. Most consumers are able to file for either Chapter 7 or Chapter 13 bankruptcy protection. Both of these types of bankruptcy have their own eligibility guidelines. If you are unable to qualify for Chapter 7 because your income is too high, you might still be able to qualify for Chapter 13 bankruptcy.
Am I Eligible for Bankruptcy Protection Under Chapter 7?
In Chapter 7 bankruptcy cases, eligible debtors are able to receive a discharge of most types of their unsecured debts in just a few months. When the debts are discharged, the creditors are no longer able to engage in collection activities, and the debtors will not have to repay them. If you are facing overwhelming debt, Chapter 7 consumer bankruptcy might be a good choice for you. However, you must meet the eligibility guidelines to file your petition under this chapter.
Chapter 7 bankruptcy is means-tested. In order to qualify, your income must be less than the median income for the state in which you live. You can calculate this by looking at your current monthly income and comparing it to the state’s median income for a family of a similar size. If the amount that you are paid varies from month to month, you can calculate your current monthly income by taking the average monthly income that you have earned in the past six months. If your income is equal to or less than the median, you are presumed to qualify for Chapter 7. If it is more, you will then have to pass the means test to file under this chapter.
The means test examines whether you have disposable income left each month to repay a portion of your unsecured debts. This is calculated by subtracting allowed expenses and secured debt payments from your income. The trustee will also examine your income and your expenses to see if you have money left over each month after paying your expenses. If you have enough left over each month to repay a portion of your unsecured debts over a period of five years and your income exceeds the state’s minimum, you will be expected to file for Chapter 13 bankruptcy instead of Chapter 7.
If you have filed for bankruptcy protection in the past, you must wait the required amount of time before filing again. If you previously filed for Chapter 7 bankruptcy, you must wait for eight years before you are able to file for Chapter 7 again. If your previous bankruptcy was a Chapter 13 case, you must wait for six years to file for Chapter 7 bankruptcy.
Other requirements that you must meet to file for Chapter 7 bankruptcy include that you must have filed your tax returns for the last four years, and you must complete a required credit counseling course from an approved agency before you file your petition.
Am I Eligible for Bankruptcy Protection Under Chapter 13?
If your income is too high to qualify for Chapter 7 bankruptcy, you may be able to file for Chapter 13 bankruptcy instead. This type of bankruptcy involves you repaying a portion of your unsecured debt balances over a repayment period that lasts for a minimum of three years or up to five years. If you successfully complete your repayment plan, the remaining unsecured balances will be discharged.
Some people want to file for Chapter 13 bankruptcy instead of Chapter 7 even though they are eligible for Chapter 7 because it involves debt reorganization instead of liquidation. Under Chapter 13 bankruptcy, you may be able to keep more of your property. Chapter 13 bankruptcy may also allow you additional time to catch up your payments of certain secured debts (such as your mortgage), which could help you save your home from a possible foreclosure action.
There are some specific eligibility requirements for filing a Chapter 13 bankruptcy petition as well. First, you must have filed your tax returns for the past four years, and you must earn a sufficient regular income to make your payments under your repayment plan. Your debt must not exceed certain limits, and the debt limits are updated every three years. Currently, your secured debts cannot total more than $1,184,200, and your unsecured debts may not exceed $394,725. If you are an individual debtor whose income is too high for Chapter 7 and whose debts are too high for Chapter 13, you will have to file for bankruptcy under Chapter 11. If your debts are too high for Chapter 13 but your income passes the means test, you will need to file for Chapter 7 bankruptcy.
Bankruptcy may help you take care of your unmanageable debts so that you can have a fresh start. For help determining your eligibility for bankruptcy and which chapter might be the right choice for you, contact the Law Offices of Craig L. Cook today. We can help you answer the question, “Am I eligible for bankruptcy?”