So you’re considering bankruptcy? Just not quite sure if you qualify? The prerequisite process can be rather tedious, with various requirements for an individual, or business to meet. The following is a basic guide through the requirements for chapter 7 and chapter 13 of the Bankruptcy Code.
In order to qualify for a chapter 7 Bankruptcy, an individual must pass either the income test or the means test. The income test measures whether your annual gross household income is below the annual median household income for your state. The means test requires the debtor to compare their current monthly income, and the average income in the six months preceding the application for bankruptcy, with their state's median income.
Furthermore, at least 180 days prior to filing for Chapter 7, a debtor must participate in credit counseling with a nonprofit agency that is approved by the U.S. Trustee's office. The purpose of credit counseling is to help the debtor determine whether other options besides bankruptcy are available. All debtors must participate in credit counseling unless an exception applies.
In order to qualify for Chapter 13 Bankruptcy an individual must show that after expenses and allowable deductions, no money is left to repay some of the unsecured debts. An unsecured debt is a debt that isn’t attached to any particular collateral, i.e. credit card debt. Unlike Chapter 7, which liquidates certain assets and distributes those funds to your creditors, Chapter 13 allows you to create a debt payment plan that will put the majority of your debts on an automatic stay, until you are able to pay off those debts.
Consequentially, debtors also have the responsibility of showing the bankruptcy court that they will have enough income after subtracting certain allowed expenses and required payments on secured debts (such as a car loan or mortgage), to meet repayment obligations. As with the chapter 7 qualifications, chapter 13 debtors are also required to file a certificate of proof establishing that an approved credit counseling agency provided debt counseling at least 180 days prior to filing for Chapter 13. If the credit counseling agency created a debt management plan, a copy must be provided to the court. The debtor is required to file the certificate with the initial paperwork, or provide it within 15 days after filing a bankruptcy petition. The plan must pay back certain debts in their entirety, or the judge will not approve it.
These required debts payments include paying 100% of your administrative claims, such as filing fees, the trustee's commission, and attorney's fees, if you retain legal counsel to help with your bankruptcy. Priority debts, such as back alimony and child support, most tax debts, wages, salaries, or commissions you owe to employees, and monies you owe to any employee benefit fund must also be paid in full. Mortgage defaults must be paid in full if you opt to retain your home, other secured property debt defaults must also be paid in order to hold possession of those properties as well. This includes car payments.
There are many factors that play into the qualification process for bankruptcy. The first step is to begin to recognize what those qualifications are. If you believe you may qualify, but are unsure on how to proceed, it would be wise to seek advice from an attorney who specializes in bankruptcy. Feel free to contact RMA & Associates, LLC, Attorneys at Law, today at 301-979-7427 and mention this blog post for a free bankruptcy consultation.
The information contained within this blog post is provided as general informational purposes only and are not intended to be interpreted as legal advice of any nature. Furthermore, nothing contained in this blog or in this website is intended to create an attorney-client relationship. If you require legal advice, please consult with an attorney of your choice, who is licensed to practice in your jurisdiction.