Navigating the murky waters of financial difficulties is never easy, and the decision to file for bankruptcy is often fraught with anxiety and uncertainty.
The two most common types of personal bankruptcy are Chapter 7 and Chapter 13, each with its own set of eligibility requirements and implications.
If you’re considering this significant financial step, working with a knowledgeable attorney can be invaluable. This article delves into the eligibility criteria for both Chapter 7 and Chapter 13 bankruptcy and explores the crucial role an attorney plays in this complex process.
The primary eligibility requirement for Chapter 7 bankruptcy is passing the “means test.” This test assesses your financial resources to determine if you genuinely lack the means to pay off your existing debts.
The first part of the test compares your household income to the median income for a household of your size in your state. If your income is below the median, you are generally eligible to file under Chapter 7.
If your income surpasses the median, you will need to proceed to the second part of the means test. This part considers your disposable income after deducting allowable expenses like mortgage payments, utilities, and childcare.
If your disposable income is still high, you may not qualify for Chapter 7.
Filing for Chapter 7 involves the liquidation of your non-exempt assets to pay off as much debt as possible. Every state has its list of exemptions — assets that cannot be sold off.
These often include your home, car (up to a certain value), and essential personal items. If you have substantial non-exempt assets, like a vacation home, you might choose not to file for Chapter 7, even if you pass the means test.
If you have filed for bankruptcy before, timing becomes a factor. You can only file for Chapter 7 once every eight years.
If you’ve filed for Chapter 13 before, you need to wait at least six years before you can file for Chapter 7.
Chapter 13 is often referred to as a “wage earner’s plan” because it requires you to have a regular income. This type of bankruptcy allows you to develop a repayment plan to pay off your debts over a period of three to five years.
Your income must be sufficient to cover both your living expenses and the required debt payments.
Chapter 13 bankruptcy also has specific debt limits. As of 2021, your secured debts (e.g., mortgage, auto loans) must not exceed $1,257,850, and your unsecured debts (e.g., credit cards, medical bills) must be below $419,275.
These figures are adjusted periodically for inflation.
If you have recently filed for bankruptcy and received a discharge, you may be ineligible to file for Chapter 13.
Specifically, you cannot file for Chapter 13 within two years of receiving a Chapter 13 discharge or within four years of a Chapter 7 discharge.
Bankruptcy laws are complicated and often difficult to understand for the layperson.
A knowledgeable attorney can guide you through the eligibility criteria, help you pass the means test if applicable, and advise you on the best type of bankruptcy to file.
They can also represent you in court and negotiate with your creditors, making the process less stressful and more efficient.
Your attorney can help you understand which of your assets are exempt and what you could potentially lose in a Chapter 7 bankruptcy.
In a Chapter 13, they can help you draft a feasible repayment plan that protects your assets while still satisfying your creditors.
While hiring an attorney does involve legal fees, attempting to navigate bankruptcy on your own can be far more costly in the long run.
Errors in filing or misunderstandings of the law can result in the dismissal of your case, forfeiture of assets, or being stuck in a less advantageous type of bankruptcy.
Bankruptcy involves complex legal procedures and extensive paperwork. An attorney can save you significant time and effort by taking care of these logistical aspects.
They can also expedite the process by effectively communicating with your creditors and the court.
Perhaps the most understated benefit of hiring an attorney is the peace of mind that comes with knowing an expert is handling your case. During a challenging period, having a competent advocate can provide significant emotional relief.
While some may see hiring an attorney as an added expense, when you’re in the complex labyrinth of bankruptcy laws, an attorney is your best guide. An attorney not only ensures you meet all eligibility criteria but also helps protect your assets, saving you both time and money in the long run.
In conclusion, both Chapter 7 and Chapter 13 bankruptcies come with specific eligibility requirements that can be difficult to understand.
And while some resources can help you navigate this journey alone, the guidance, expertise, and peace of mind offered by an experienced attorney are incomparable. For these reasons, hiring an attorney isn’t just an option; it’s the best option.
It’s important to hire an experienced bankruptcy attorney as one of the steps to take when you’re facing bankruptcy and you need solid guidance and representation.
This is because there are many different types of bankruptcy. Only an experienced lawyer will know which one would work best for your specific situation.
It might seem like it makes sense to do this yourself. But most people don’t have the time or patience to understand all of the intricate details involved in bankruptcy.
That means they make mistakes by not choosing the right type, or by not filling out paperwork correctly. Both things could lead to delays and ultimately hurt your chances of getting any debt relief at all.
This is not a journey to take lightly, but it is also not one to take alone. So, if you need to file for bankruptcy, reach out to us today to start your journey with us.
If you want to learn more about the options you have and the steps to take, call us for a free consultation.
Parker and DuFresne