Nowadays, it’s all too easy to sink into debt, but it’s extremely difficult to get rid of it. You may be watching your debts pile up month after month while you don’t have enough money to make ends meet. As you face this difficult time in your life, you may wonder what you can do to get out of debt and regain control of your life and finances. Fortunately, there is a legal alternative that could be helpful to you. As you might imagine, we’re talking about bankruptcy.
Now, bankruptcy may be the answer to your financial problems, but not everyone qualifies for it. You need to keep in mind several factors to know if you qualify for your preferred bankruptcy chapter or if you’ll have to look for other options to get the fresh financial start you need.
Here you will learn how you can determine if you qualify for Chapter 7 bankruptcy and how a bankruptcy attorney may help you navigate the process.
What is chapter 7 bankruptcy?
One of the most important decisions you will have to make during your bankruptcy filing is which chapter of bankruptcy you wish to file. Bearing this in mind, you should know that the most popular type of personal bankruptcy is Chapter 7 bankruptcy.
Chapter 7 bankruptcy will enable you to get rid of most of your debts in a matter of months. To accomplish this, your non-exempt assets will be sold by a court-appointed bankruptcy trustee. The trustee will then use the proceeds to pay your creditors.
So, if you are looking for a quick solution to your debt problems and don’t mind the prospect of having to sell some of your assets to do so, Chapter 7 may be your best option.
However, qualifying for Chapter 7 bankruptcy is not as simple as it may seem. To do so, you will have to pass a means test that will assess your finances and determine if you meet the financial requirements to be eligible for this debt relief solution.
Is your income low enough?
The first phase of the means test will determine if your income is below or above the state median. Income includes wages, bonuses, tips, salaries, overtime, commissions, interest, royalties, workers’ compensation, tax returns, and more. Essentially, most of your money inflows.
If your current income is below the state median for households similar to yours, you will automatically qualify for Chapter 7; you won’t have to complete the rest of the means test.
However, if your income is higher than the state median, you will need to proceed with the rest of the test to determine if you qualify.
The bankruptcy means test
The means test is designed to restrict the use of Chapter 7 bankruptcy. The goal is to make this solution available only to those who indeed cannot pay their debts.
To do so, it deducts certain monthly expenses from your current monthly income to determine your “disposable income.”
As a rule of thumb, the higher your disposable income, the less likely you are to qualify for Chapter 7 bankruptcy. The point is, if you have enough disposable income each month, you should use it to pay your creditors.
Now, if your income is too high, but you still want to get rid of your debts, you may want to consider Chapter 13 bankruptcy instead. In this type of bankruptcy, you will have to create a 3-to-5-year repayment plan. Once you complete it, most of your remaining debts will be discharged.
Other requirements to keep in mind
Besides your monthly income, there are other details you should consider to find out if you are eligible for Chapter 7 bankruptcy:
Pre-bankruptcy credit counseling is mandatory:
Before filing for any type of bankruptcy, you must complete a credit counseling course conducted by an approved agency. You are required to attend this course six months before your bankruptcy filing. Otherwise, your filing may be dismissed.
There must be nothing suspicious about your finances:
Bankruptcy courts will carefully evaluate your finances after your filing. If they find anything suspicious, such as that you transferred money or assets to family members to avoid losing them or that you maxed out your credit cards to abuse the process, your filing could be denied, and you might face fraud charges.
What if you filed for bankruptcy before?
If you previously filed for bankruptcy, you will have to wait some time before doing it again. To be exact, you have to wait eight years after a Chapter 7 bankruptcy filing before filing again, and six years in case of a Chapter 13 filing.
Should you work with an attorney during your filing?
Working with a Los Angeles bankruptcy attorney during your bankruptcy filing could be very helpful to you and will maximize the chances of success of your filing.
The attorney will help you choose the bankruptcy chapter that best fits your financial situation and advise you during the means test to ensure that you include all the required information without making unnecessary mistakes.
Overall, working with an experienced attorney may be your best option if you want your bankruptcy filing to be effective, simple, and stress-free.