When a person’s amount of debt becomes too much for them to pay back, often times filing bankruptcy can be a cheap and efficient way back to financial independence. There are two basic types of personal bankruptcy – Chapter 7 and Chapter 13. Either Chapter can resolve issues with credit cards, medical bills, pay day loans and stop lawsuits and garnishments, along with other types of debt.
Often the first step in determining whether or not bankruptcy is a debt relief option, is determining which chapter of bankruptcy you are eligible to file. A lot of individuals will qualify for both chapters, some may only qualify for one, and in very rare situations it can be possible to fail to qualify for either.
Do I qualify for Chapter 7 Bankruptcy?
The first step in determining whether or not you qualify for Chapter 7 bankruptcy is to calculate your gross household income. This calculation is generated from your last six months of income. For example, if you want to file in September, you will use the household income from the months of February through August. Double the income made through those months to give yourself a yearly projection of your total household income.
Every county has a standard they refer to as the median income level. This median income level is calculated based on the number of individuals living in your household. If the yearly income projection is less than your county’s median income level, you automatically qualify to file Chapter 7 bankruptcy.
Even if your income is too high, you still might have a chance at qualifying. Your attorney will calculate the means test. In short, this is a calculation that starts with your monthly gross income and then starts deducting expenses. These deductions will include taxes, insurance, certain IRS standards for housing, food, utilities and many other expenses. At the end of the means test, there will be a disposable income number listed. If your number is low enough, you qualify.
If you are unsure whether or not you make too much money, my office will run a means test for you free of charge.
Do I qualify for Chapter 13 Bankruptcy?
Unlike Chapter 7 bankruptcy, you can qualify for Chapter 13 bankruptcy no matter how much money you make. However, unlike Chapter 7, there are limits to how much debt one can have and still be eligible to file a Chapter 13. As of April 1, 2016, the debt limits in a Chapter 13 are $394,725 in unsecured debt, and $1,184,200 in secured debt. Remember, a secured debt is a debt that attaches to property, like a car or home loan. Most debts like hospital bills, pay day loans and the majority of credit cards are unsecured. If you are above the debt limits, you will not be able to file a Chapter 13.
If you are unsure how much debt you may have, a good place to start your investigation is a credit report. Two places you can go to get free credit reports are www.annualcreditreport.com and www.creditkarma.com.
When can I file bankruptcy again?
If you received a discharge in a prior bankruptcy, there are certain time restrictions that prevent you from seeking a discharge in a new bankruptcy. The following time restrictions are from the filing date of the previous bankruptcy:
- Chapter 13 to Chapter 7 – six years (certain exceptions)
- Chapter 7 to Chapter 7 – eight years
- Chapter 7 to Chapter 13 – four years
- Chapter 13 to Chapter 13 – two years