When every call you get is from collections and you’re drowning in debt, you may want to consider filing for Chapter 7 bankruptcy. Bankruptcy may be the best way to get back on your feet again. For Chapter 7 bankruptcy, you may be wondering if you have enough debt to meet the qualifications.
Macco & Corey P.C. can provide the guidance you need for understanding federal bankruptcy law and filing for Chapter 7 bankruptcy. Read on to find out how a Chapter 7 bankruptcy attorney can help throughout this process.
Determining If You Are Eligible for Chapter 7 Bankruptcy
According to the U.S. bankruptcy code, there is no specific minimum dollar amount of debt owed that would make them eligible for filing bankruptcy. This means that no matter how much you owe, you can file for Chapter 7 bankruptcy.
A key determinant is the size of your income. This is one factor that will affect whether or not you will qualify to file Chapter 7 bankruptcy. In addition to how much you earn, you can only file Chapter 7 bankruptcy if you are filing as an individual or as a couple — not as a corporation or business.
Eligibility is also impacted by whether you’ve had debts wiped away by bankruptcy before. If you have done so within the past six to eight years, you will not be eligible. All people filing for bankruptcy must go through court-approved credit counseling within six months of filing, and you must pass the means test.
What Is the Means Test?
The Chapter 7 means test involves two steps. First, it serves to measure your current income against the median income in your state. This is to evaluate your disposable income to see if you can afford to pay your bills and household expenses.
The test examines your average monthly income because it’s one of the most relevant factors in determining your eligibility for bankruptcy. The more household income you have, particularly if you have enough disposable income, the less likely you will be to have bankruptcy court approve your request.
It stands to reason that if your current monthly income is sufficient to pay your debts, you will not be eligible for Chapter 7 bankruptcy. Additionally, your income needs to fall below the median household income amount in your state. If your income is below the state median, you cannot have too much disposable income. This can be calculated by taking your total income and subtracting your monthly costs for rent, mortgage, food, medical bills, and other sundries.
You’ll then need to fill out two forms to file for your bankruptcy. Even making a minor mistake could set you back and cause the courts to deny your request. Working with a bankruptcy attorney can help you through the intricacies of the process.
The first step is completing the means test calculation paperwork in Form 122A-1. It’s used to establish your income level. You will list your marital status and gross income, which should include money earned by your spouse, if applicable. Any money that you receive for alimony, child support, unemployment income, Social Security, pension payments, or other retirement investments must also be noted. You will need to look up the median income for the state you reside in and determine if your income level is lower.
Regardless of your income, you will also need to fill out Form 122A-2. It’s far more detailed, allowing you to calculate disposable income or the money you should have available to pay your debts. If you don’t pass the means test, you will need to look at other ways to relieve your financial situation.
What Are the Benefits You Get When Filing for Chapter 7 Bankruptcy?
One of the greatest benefits of filing for Chapter 7 bankruptcy is that you can eliminate your unsecured debt. In addition to getting rid of your unsecured debt, you don’t need to have a repayment plan.
All of your qualifying unsecured debts will disappear and debt collection will end. Depending on your circ*mstances, you may get to keep most of your assets, such as your home and your vehicle. Once Chapter 7 bankruptcy is approved, your debt collection is finished and you will no longer endure harassment from debt collectors.
Instead of a repayment plan, your bankruptcy trustee will sell all non-exempt assets. They will then take these proceeds and pay your creditors. In some cases, some of your property may have liens imposed, pledging them to your creditors.
According to the U.S. bankruptcy code, some of your assets will be exempt from liquidation. These are known as dischargeable debts. A dischargeable debt can be credit card debt, car loans, personal loans, medical debt, utility bills, payday loans, judgment from debt collection agencies or on credit card debt, or any other unsecured debts.
Debts That Can’t Be Discharged with Chapter 7 Bankruptcy
Unfortunately, bankruptcy laws for Chapter 7 bankruptcy don’t allow for the removal of all of your debts. Certain debts must be paid no matter what.
These non-dischargeable debts include alimony, child support, tax debts, student loans, and other secured debts. When figuring out your monthly financial obligations, you will need to determine whether you have any non-dischargeable debt such as tax debts or student loans may be negotiable into new terms. However, if the primary reason you’re in debt is because of secured debt, then you will need to consider the alternatives to Chapter 7 bankruptcy.
What Are the Alternatives to Filing Bankruptcy for Debt Relief?
Filing for bankruptcy is a major financial decision, one that will affect your credit report for many years. While creditors may cease their harassment, you will have to endure the consequences, especially if you need to make a large purchase.
Any type of bankruptcy may not be the best solution in your situation. It should only be a last resort, and ideally, an option you should consider after speaking with a bankruptcy attorney.
Even though Chapter 7 bankruptcy has many benefits, it will appear on your credit history for up to 10 years. You also have the potential to lose most of your personal property. While it will eliminate many of your debts, you will still be on the hook for secured debts. You must understand what you’re getting into as failure to come up with a debt management plan may leave you in the same desperate situation. You won’t be permitted to file for bankruptcy again for at least eight years.
There are alternatives to consider before you file for Chapter 7 bankruptcy. You should look at these debt relief strategies first.
Debt Management Plans
A debt repayment plan is offered through non-profit credit counseling agencies. It combines all of your debts and then reduces the interest rates on your credit card debt.
Debt Consolidation
Consolidating your debt may be another avenue to pursue. Unlike a plan for debt management, it involves combining all your owed debts into one loan, making it much easier to manage the payments.
Debt Settlement
You can also have a third party negotiate your debt obligations individually. This helps you pay less than you owe, though there are some downsides to this option. It’s wise to seek financial advice first before pursuing this resolution.
Snowballs and Avalanches
You have the option to choose a debt snowball strategy to pay off your smallest debts first or go with a debt avalanche in which you pay off your debts based on which ones have the highest interest to save money.
Chapter 13 Bankruptcy
Another option is to consider Chapter 13 bankruptcy. Like Chapter 7, it may not apply to your situation, or it simply may not be the best course of action to manage your debt payments.
What You Should Know About Chapter 13 Bankruptcy
Chapter 13 bankruptcy may be an option if you aren’t eligible for Chapter 7 bankruptcy. This type of bankruptcy allows you to strategically handle your debt obligations while you work to pay them off over a period that typically spans three to five years.
Filing bankruptcy with Chapter 13 has some distinct advantages. If you are a homeowner, it may be an ideal option because it can keep your home from going into foreclosure. You can also extend your debts across the duration of this plan to make one debt-related payment per month to your bankruptcy case trustee who will use it to pay your creditors.
Certain contingencies apply as well, such as submitting a payment plan to the bankruptcy court within 14 days of filing bankruptcy. Within 30 days of this filing, you need to make your payments, even if you are still awaiting approval by the court.
A bankruptcy judge must hold a confirmation hearing within 45 days after meeting with your creditors regarding your plan. Once approved, you can simply make the debt payments directly to the trustee.
Should You File Chapter 7 Bankruptcy?
Determining if you should file Chapter 7 bankruptcy is a huge decision. If you decide to go through with it, you need to undergo counseling for your credit and money management as per bankruptcy laws.
You should make sure that you understand every financial option available to you before you decide to file for bankruptcy. If bankruptcy is the best option, you will want legal representation to ensure a smoother process.
Once you have been approved for bankruptcy, you will receive a discharge of debt from federal court. This notification is your ticket to freedom from financial liability for the applicable debts.
Getting Help with Bankruptcy Basics
How much debt you have and the types of debts will weigh heavily into whether or not bankruptcy through Chapter 7 is right for you. In addition to how much debt you owe, your income level will dictate whether you have enough money to pay off your financial obligations.
The decision to file bankruptcy is a big one that may result in discharged debts to help you get your head above water. However, it’s imperative that you learn financial management or you may wind up in a worse financial situation.
Macco & Corey P.C. can help you review your circ*mstances and help you determine if you are eligible for Chapter 7. We have assisted many people struggling with their debts through this process and can provide you with the expert advice and tips you need for successfully navigating the bankruptcy process.
