Qualifying For Bankruptcy

April 13, 2012

Some people believe that they do not "qualify" for bankruptcy relief. Often the reasons for disqualification are strange: for instance, "I make too much money," or "I don’t make enough money," or "I only have medical debt." In some cases there is a bit of truth to these excuses, but many of the reasons are pure hogwash.

The federal bankruptcy laws exist to give an honest debtor relief from overwhelming financial obligations. There are two basic types of personal bankruptcy, codified in the Bankruptcy Code under Chapter 7 and Chapter 13. "Qualifying" to file under one of these chapters depends upon your circumstances.

Chapter 7 is a straight bankruptcy. The idea is to eliminate your debts quickly and give you a fresh financial start. To qualify for a Chapter 7 bankruptcy, the debtor must demonstrate that there is not sufficient income to pay back a substantial portion of all unsecured debts over the next three to five years. The debtor must take a financial means test to show that he or she is unable to pay creditors.

There is no minimum or maximum debt limit in a Chapter 7 case. Most debts are discharged during Chapter 7, but some debts may be excluded, including child support debts, tax debts, and criminal restitution.

A Chapter 13 is a repayment bankruptcy. The Chapter 13 debtor submits a repayment plan to the bankruptcy court offering to repay some or all of his creditors over three to five years. Naturally, the debtor must show that he or she has sufficient income to complete the repayment plan. While there is no minimum amount of debt required to file a Chapter 13 case, the Bankruptcy Code limits Chapter 13 cases to debtors with unsecured debts less than $360,475 and secured debts under $1,081,400.

When a debtor is able to repay some debts, but does not qualify for Chapter 13 bankruptcy, the debtor may elect to file a Chapter 11 bankruptcy case. Chapter 11 is most often used for corporations like General Motors, but individuals can also file Chapter 11. There are no minimum or maximum debt limits in a Chapter 11 case.

If a debtor has previously filed a bankruptcy case, the debtor may be ineligible for certain bankruptcy relief for a period of time. For instance, you are not permitted to file another bankruptcy case for 180 days if your bankruptcy case was voluntarily dismissed after a creditor requested relief from stay, or your case was dismissed for failure to obey a court order. Additionally, after you receive a discharge in a previous Chapter 7 bankruptcy case, you must wait 8 years before you can receive another Chapter 7 discharge; and 6 years to receive a Chapter 13 discharge. If you received a discharge in a previous Chapter 13 bankruptcy case, you must wait 4 years before you can receive a Chapter 7 discharge; and 2 years to receive another Chapter 13 discharge.

Very few people do not “qualify” for bankruptcy. If you are hurting financially and need help, the federal bankruptcy laws offer many different forms of relief. Call an experienced bankruptcy attorney and learn how the law can eliminate or restructure your financial situation to get you out of debt.

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