If you are considering filing for bankruptcy, you may be wondering whether you qualify for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Not everyone is eligible for bankruptcy. For example, there are certain income restrictions on who can file for a Chapter 7 Bankruptcy. Many of these restrictions can be complex and depend on where you live, what type of debt you have, and the specifics of your income.
The best way to find out if you qualify for Chapter 7 or Chapter 13 Bankruptcy is to contact an Alameda County Bankruptcy Attorney to find out if you qualify and whether bankruptcy is a good option for you.
Although the eligibility rules generally depends on which type of bankruptcy a debtor wants to file, one common limitation is that a debtor cannot file for Chapter 13 or Chapter 7 Bankruptcy if, within the previous 180 days, their bankruptcy petition was dismissed because the debtor willfully violated a court order, or requested that the court dismiss the case after a creditor asked the court to lift the automatic stay.
Chapter 7 Bankruptcy is available for both individuals and businesses. For some business types, such as a sole proprietorship, Chapter 7 Bankruptcy can in some circumstances wipe out the nonexempt individual debts of the owner as well as the owner’s business debts. For individuals, Chapter 7 Bankruptcy is by far the most common type of bankruptcy.
In order to for an individual to qualify for Chapter 7 Bankruptcy, they must pass what is called the “Chapter 7 means test.” The means test is designed to test the ability of a person who files for Chapter 7 Bankruptcy to pay their debts. The means test is comprised of several steps:
Step 1: The first step of the Chapter 7 means test is to compare the debtor’s income to the median annual income for the state in which they live. For 2014, California’s annual median income ranged from $48,498 (for single tax filers) to $76,211 (for a family of four). $8,100 for each family member is added in excess of four. If a debtor’s income is less than the annual median income, they will likely pass the means test and they can file for Chapter 7 Bankruptcy.
Step 2: If a debtor’s income is greater than the median income, the means test evaluates their disposable income to determine whether they qualify. This step is complicated and depends on the debtor’s income, some of the debtor’s actual expenses, the county in which the debtor lives, and on some expenses that are set by the Internal Revenue Service. Once a debtor’s disposable income is calculated, if that amount falls above a certain threshold there is a presumption that the debtor does not qualify for Chapter 7 Bankruptcy.
Chapter 13 Bankruptcy is only available for individuals. In order to qualify for Chapter 13 Bankruptcy, a debtor must satisfy three steps:
Step 1: If an individual has too much debt, he or she will not be able to qualify for Chapter 13 Bankruptcy. In 2014, if a debtor has more than $1,149,525 in secured debt (debt secured by an interest in property such as a house or a car), they will be unable to file for Chapter 13 Bankruptcy. Likewise, if a debtor has more than $383,175 in unsecured debt, he or she will be unable to file for Chapter 13.
Step 2: Even if your debt falls within the applicable limits, you must still have sufficient disposable income to meet the payment obligations under a Chapter 13 Bankruptcy plan. Disposable income may include several types of income including:
1) Wages;
2) Pension payments;
3) Social Security benefits;
4) Disability;
5) Worker’s compensation benefits;
6) Alimony;
7) Child support; and
8) Rental income.
The bankruptcy plan is proposed by the debtor and details how he or she plans to pay off certain debts. At the termination of the plan, the debtor is generally excused from the remainder of his unsecured debts. However, creditors must receive at least as much in Chapter 13 Bankruptcy as they would in Chapter 7.
Step 3: Because Chapter 13 Bankruptcy places a great deal of scrutiny on the debtor’s income and ability to pay his or her creditors, a debtor who files for Chapter 13 must be able to submit proof of having filed federal and state income tax returns for the last five years, if they were required to file tax returns. Without these tax returns, a Chapter 13 Bankruptcy filing will be dismissed.
One of the first steps to filing for bankruptcy is determining whether you qualify. However, as seen above, the legal issues vary depending on the type of bankruptcy, and some can be quite complex. If you are considering filing for bankruptcy, you should contact our experienced bankruptcy attorney in the Alameda County area by calling us at 510-255-4646 or contacting us online. We can advise you on whether you qualify for Chapter 7 or Chapter 13 Bankruptcy.
The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code
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