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Who Qualifies for a Chapter 7 Bankruptcy Fresh Bankruptcy Start? |
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Chapter 7 Consumer Bankruptcy Petition may be filed by an individual or married couple and is, intended to give the debtor the opportunity for a fresh start. |
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The Petition must provide complete information about your assets, liabilities, income and other financial information. |
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Means Testing -Generally whether you qualify for a Chapter 7 Fresh Start can be determined by your family income and size compared to the median income, which is updated periodically, for the State
in which you live . For the most current information, please visit the U.S. Trustee Program website. |
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Caution Home Owners -Even if you qualify under the means test, it may not be in your interest to file a Chapter 7 Petition because it may cause you to lose your home. If your home is worth substantially more than the mortgages on the home and other certain other liens on the home, you may expose it to sale by the Trustee who would use the proceeds to pay your other creditors. A calculation of whether your home is exempt from your creditors, after taking into account the exemptions to which you are entitled, should be performed by an attorney and may require an appraisal of the home. |
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| Q. |
What if I do not qualify for a Chapter 7 Bankruptcy or I have substantial equity in my home? |
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A Chapter 13 Bankruptcy may enable you to reduce the amount you must repay to your creditors and allow you to repay it over a five year period at no interest - See Below - Chapter 13 Other Debts. |
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Under Chapter 7: |
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A debtor may be able to completely eliminate (discharge): credit card debts, medical debts, personal loans, lawsuits, judgments, deficiency balances due on automobile loans, debts related to automobile accidents, federal income taxes that are more than three years old and other debts.
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A debtor cannot eliminate: most delinquent income taxes, alimony and child support payments, fines, penalties, criminal restitution, debts incurred through fraudulent conduct, debts incurred through intentional injury to person or property, debts from personal injuries caused while intoxicated, or student loans (except in the most severe hardship cases).
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When you file bankruptcy under Chapter 7 Bankruptcy you are allowed to keep all of your "exempt" assets. |
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Example of Assets Which Can Usually be Exempted -Motor Vehicles reasonably necessary for your daily activities, household goods and furnishings, clothing, jewelry, life insurance policies, annuities, retirement accounts and pensions, I.R.S. earned income credit, refunds, wages, bank accounts, social security benefits, disability benefits, spousal or child support, etc. |
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| Q. |
Is the most frequent reason for filing a Chapter 13 Petition & Plan is to allow a homeowner to avoid foreclosure and the loss of their home? |
| A. |
Chapter 13 Bankruptcy prevents foreclosure if a homeowner can resume making their regular monthly mortgage payments, property taxes and insurance and make up the arrears on their mortgage over a period of 36 to 60 months. |
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Example I - You are 6 months behind on your mortgage payments of $2,500.00 per month and file a Chapter 13 Petition and Plan. The Plan proposes that you begin making your monthly mortgage payment and would also require you to pay the arrears on your mortgage of $15,000.00 ($2,500.00 x 6 months) over a period of 60 months by making a payment to the United States Trustee each month of $250.00 plus the Trustee's commission of approximately $25.00 per month. |
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Example II - You are 6 months behind on your mortgage payments and your home is worth substantially more than the amount of the mortgage(s) on it and you have now decided to sell it to avoid foreclosure and a sheriff sale, but you need more time to find a buyer who will pay a fair price. A Chapter 13 Plan would allow you a reasonable opportunity to make a diligent effort to sell your home provided that the mortgage holder was provided with 'adequate protection' while you were attempting to sell the home. What constitutes 'adequate protection' must be determined on a case by case basis. For instance, the Bankruptcy Court may require that you begin paying the interest on the mortgage and taxes and insurance on the property while you are attempting to sell it. |
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Other Debts - Chapter 13 also prevents other creditors from collection activities such as creditor harassment, law suits, wage garnishment and auto repossession. Depending on the type of debt owed by you, your income and your assets, the Plan filed by you may provide that other debts be repaid at no interest over the life of the plan or that only a percentage of the amount owed be repaid or in some cases, no repayment is required. |
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Unfortunately, in some cases the debtor simply cannot file under Chapter 13, as he or she lacks the disposable income necessary to fund a viable Chapter 13 plan. Furthermore, Section 109(e) of Title 11, of the United States Bankruptcy Code sets forth debt limits for individuals to be eligible to file under Chapter 13. There are debt limits for filing Chapter 13 which are adjusted for the annual cost of living increases. |
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