Do I qualify for bankruptcy? The short answer is that almost everyone qualifies for some type of bankruptcy relief.
In answering this question, it important to understand the different types of bankruptcy.
What is Chapter 7?
Chapter 7 is where you typically eliminate of your debts. Many people like to refer to Chapter 7 as the “fresh start” provision of the bankruptcy code. To qualify for Chapter 7 you must have no money left in your budget after you pay all of your living expenses. In other words, you are ending every month on zero.
In addition, you must pass the means test. To pass the means test, your family must have a monthly income that is lower than the average family of your size in your region as determined by the IRS. These numbers are updated every quarter. As of the date of this writing, the means limit for a family size of two people in our area is 65,007. As a general rule, if a family size of two people has income higher than this limit, they most likely won’t be able to qualify for a Chapter 7 bankruptcy. However, there are exceptions for people who are slightly over the limit. If someone is making twice the limit, there is no way they are going to qualify for a Chapter 7. Instead, they will need to look at a Chapter 13.
What is Chapter 13?
Chapter 13 is often referred to as the “catch your breath” provision of the bankruptcy code. It is a great tool for people who have some money to pay towards creditors but cannot do it when they come piling down on top of you at the same time. Chapter 13 allows you to get court protection and step back so that you can catch your breath. Unsecured debt can be eliminated in a Chapter 13 just like a Chapter 7 but over a longer period of time. Chapter 13 is a great tool for catching up arrears on house payments, catching up past due car payments and stopping garnishments.
How much will you have to pay back in a Chapter 13?
The answer this question will depend on (1) what is your number at the end of the means test (2) how much money do you have leftover at the of the month on your budget after your living expenses have been paid and (3) how much exposed equity do you have in any assets.
Can you have too much debt to qualify for a Chapter 7? The answer to this question is no.
Can you have too much debt to qualify for a Chapter 13? The answer to this question is yes. Currently the debt limit for unsecured debt in a Chapter 13 is $419,275.00. The debt limit for secured debt is $1,257,850.00. Every 3 years, the debt limits are adjusted based on the Consumer Price Index. Debtors who don’t qualify for Chapter 13 must file either a Chapter 7 or a Chapter 11.
Typically, Chapter 11s are business cases. The focus of my practice is Chapter 13s and Chapter 7s.
If you are struggling with any debt issues, the obvious smart move is to take advantage of a free consultation and explore your options.
How to prepare for a consultation
It is extremely helpful if a person is able to obtain copies for their paycheck stubs for the last six months so that we can take a shot at the means test. Another helpful preparation is to obtain your free copy of your credit report at www.annualcreditreport.com
If you are not able to come directly to one of our offices, we can conduct your initial consultation via phone or we can use zoom.
Currently, you can file your bankruptcy case without ever leaving your home. In addition, all bankruptcy hearings are currently conducted via phone as well.
Give us a call today and start taking action to make the stress go away.