How Do You Know If You Qualify For A Bankruptcy?

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Bankruptcy is a generic topic. It really boils down to a series of chapters specifically 7, 13, 11 and 12.

11 is the one you will see on news sometimes when our airlines decide they need to reorganize. It is mostly just for larger businesses though individual can file chapter 11 if their situation starts looking little bit more like a business than a person. 12’s are just for farmers and fishermen, so between 11’s and 12’s we don’t do lot of that in our consumer bankruptcy.

We primarily just representing people like you and me – mothers, fathers, individuals, the occasional small local business. So when you are looking at consumer bankruptcies you are by in large looking at chapters 7 and 13. 7 is the more commonly filed bankruptcy and it is roughly, very roughly, maybe 80% of the filings here in Colorado and then 13 picks up the balance of that.

As far as qualifying for bankruptcy we get asked quite often if there is a certain amount of debt that you have to have to be able to do it. You know certainly you want to go out and file a bankruptcy for a modicum of debt. Something you would have the ability to either settle or work your way out of and there is several programs out there that can assist you with that. I’ve always gone under the philosophy that most of that is the kind of thing that a person could do for themselves whether it is calling and negotiating the settlement with a credit card company or a medical debt or just putting them on some type of realistic payment plan. But when you get to the point where the total debt amount is such, or the interest rates or such that you are making payments but you are not making progress, in other words you are not seeing anything coming off of principle, it just sort of loses its feasibility as far as being solved on your own. You start looking into the things like bankruptcy as a possible solution. So then you are trying to figure out which chapter do you qualify for and which one is going to put you in a position in you want to be in once it’s all said and done with.

The chapter 7 after our law, a new law, went into effect in October of ‘05 do have income maximums that your household can have so whether it is you are a married person filing individually or a married couple filing jointly, you would want to first determine legally what is the number of people in your household. That sounds like a pretty simple thing to do. You just look around and count all the noggins in the house. But, you know, the law reads it a little bit differently. Of course, in the modern world we have all different combinations of families. Once you’ve determined the household size, then you can look it up in the chart and determine what’s the maximum amount of income that the household can produce and still file a chapter 7. So for example, real rough numbers for an individual it is about $48,500 and the way they determine the income is by looking at the income for the six months prior to the bankruptcy being filed. You average out a monthly income from that six month time period and multiply your average monthly income by 12 to annualize it and then you compare it to your charts. If are OK on income you are not in excess of the limit then you can go ahead and be qualified for a chapter 7.

Now, in 7 it is a liquidation bankruptcy so you also need to figure out can I protect what I need to protect in this bankruptcy. Make sure you not going to lose any assets that you are unwilling to walk away from and every state is going to have its own set of exemption laws.

Exemption laws are just rules that tell you how much of certain types of things you are allowed to keep. How much is protected from the creditors and they are pretty generous limits, you really have to have something that’s a little above and beyond the ordinary, like for the household goods, if you’ve got the same things that we all got in our own houses; couch, bed, tv, dvd players, that kind of thing. That’s not what they are worried about. It’s the larger items than that.

For 13 there is no income limit on it but with a 13 your income is going to play a much greater role in what percentage of the debts you might be required to payback. Whereas a 7 is a liquidation you are wiping out the majority of unsecure debts with a few exceptions that are easily identifiable, in a 13 you are doing much more of reorganizational bankruptcy. Where you are categorizing your debts and then paying back a percentage of say credit card bills or medical bills over a 3 to 5 year period and then having those balances discharged at the end. So, if you are trying to figure whether you are qualified for a bankruptcy sort of the threshold question is going to be do you even need to file one of the first place and that really just goes back to what is the amount of the overall debt load and what are your prospects for being able to handle that on your own outside of the bankruptcy filing.

Now if you know from that that you really can’t handle on your own then you start looking in down the road of filing a bankruptcy and dealing with it that way and primarily it’s going to boil down to income and household size and then once you know that you know what chapter options you have and you can start looking at the advantages and the disadvantages of the various chapters and try to determine which one is going to put you in the spot you want to be in when everything is set and done.

To continue reading the answer, see the text below or jump to another question using the links below:

  1. How do you know if you qualify for a bankruptcy?
  2. What Is Unsecured Debt?
  3. What Is The Process Of Bankruptcy Like?
  4. Can A Chapter 13 Be Converted To A Chapter 7?
  5. What Is the Process Of Bankruptcy Like – Part 2
  6. When Is The Best Time To File?
  7. How Can I Rebuild Credit After A Chapter 13?
  8. Can A Chapter 13 Be Amended?
  9. Can Filing Bankruptcy Prevent An Increase In Out Of Court Settlement?
  10. Is There Any Way To File Bankruptcy And Keep My Car Or My House?
  11. Will People From The Bankruptcy Court Send Someone To My House To Look At My Stuff?

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