Bankruptcy is a long and complicated process where the court and its officers will delve deep into your assets and debts and examine virtually every part of your financial life. However, every bankruptcy case is different, and there are even different programs available that will treat your possessions differently as far as what might be sold and what you might keep.
Most individuals and families will undergo Chapter 7 or Chapter 13 bankruptcy. The most fundamental difference between these types is that Chapter 7 bankruptcy is for individuals who don’t have a significant chance of paying off debts, and Chapter 13 is a “reorganization” of debts where a court-appointed trustee oversees a payment plan.
Eligibility for Chapter 7 Bankruptcy
If you choose the “liquidation” option of Chapter 7 bankruptcy, which is a process where the court will sell non-exempt items to pay for your debts, you’ll need to pass the Chapter 7 means test. Nerd Wallet offers a good explanation on the means test:
“It takes into account your income, expenses, and family size to determine whether you have enough disposable income to repay your debts. Although it was designed to restrict the number of debtors who can get their debts forgiven through a Chapter 7 bankruptcy, most people who take the means test pass it easily.”
The first step in the means test is figuring out whether your income is below the median income for your state. The Census Bureau Median Family Income by Family Size was $49,741 for a one-earner household in 2016. For a family of four, that figure was $86,921.
Tip: If you aren’t sure whether you pass the means test for Chapter 7 bankruptcy, it’s as easy as figuring out your income for the past six months. The court will take into account if you’ve lost your job in that time or whether you’ve had a dramatic change in income.
Qualifying for Chapter 13 Bankruptcy
You may decide that Chapter 13 bankruptcy will serve your family better. Many families who own a home will choose Chapter 13 bankruptcy for the chance it offers to keep the house.
According to debt.org:
“The option allows applicants to eliminate unsecured debts while catching up on missed mortgage payments. Short-circuiting home foreclosure is one of the option’s most attractive features.”
The court will examine your income to determine whether you qualify for Chapter 13 bankruptcy and whether your income is at a reasonable level to complete the court-mandated payment plan. Completing a Chapter 13 bankruptcy plan will take three to five years. Those with higher incomes will usually complete their programs in three years, and low wage earners will often take five years.
The Court May Decide on a Different Type of Bankruptcy
One of the most critical facets of filing for bankruptcy is that the court may disagree with you and choose another type of bankruptcy plan. Getting a firm grip on the bankruptcy process and filing the correct paperwork is one of the best reasons to hire a bankruptcy lawyer and can save you weeks or even months of hassles.
Bankruptcy plans aren’t an automatic “set it and forget it” type of court proceeding. The process requires significant research, as well as adherence to strict rules and timelines. A lawyer is an essential ally during the bankruptcy application.
Do You Have Questions About Bankruptcy?
Don’t go it alone in your bankruptcy case. Let an experienced bankruptcy lawyer from Suburban Legal assist you in this difficult time. Contact Suburban Legal Group for more information.
DISCLAIMER: All information on this website are provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.
