Qualifying for Bankruptcy

Qualifying for some kind of bankruptcy is easy. The real question is what kind of bankruptcy is appropriate for you. There is no “one-size-fits-all” answer to this question, and it is important to discuss your situation with an experienced attorney.

Any person or business under the jurisdiction of the United States can file bankruptcy. Bankruptcy is even available to people who do not have a valid social security number.

Of course, there are limits to how often you can file bankruptcy. You can only file one Chapter 7 every eight years. If you have filed a Chapter 7 in the last four years, you cannot get a discharge in a Chapter 13 case.

What people who ask whether they qualify for bankruptcy probably really want to know is whether they can go through a Chapter 7 bankruptcy without abusing the bankruptcy system. A bankruptcy court can dismiss a Chapter 7 or convert it to a Chapter 13 repayment plan if abuse is found. Chapter 7 is more attractive to a lot of people because it allows people to walk away from most of their debt without losing property or making payments in as little as three months.

In 2005, Congress reformed the bankruptcy laws to require people who file bankruptcy to go through a means test. The means test only looks at the last six months of income. If that income is more than the state average for the debtor’s household size, they must go through a means test to determine whether they can pay at least some percentage of that debt. The means test subtracts monthly expenses from the average income to see what, if anything, is available for a payment. Mortgage payments, car payments, day care, child support, back and current taxes, and health insurance are examples of actual expenses that are deducted. Examples of fixed allowed expenses are food, rent, clothes, recreation, and transportation.

Even if you “fail” the means test, you can argue special circumstance and overcome the presumption that you are abusing the bankruptcy system. For instance, you can argue that your means test is thrown off by a big bonus that is unlikely to be repeated. You can also argue that you have necessary expenses that are not included in the means test or are expecting a child soon.

Chapter 13 is easier to qualify for because you are making payments to some creditors and naturally, creditors and the court will not object to that. However, you must be able to make your plan payments. There are limits to how much debt you can have in a Chapter 13 as well. The limits change, but if you have over a million dollars of secured debt or $350,000 of unsecured debt, you may be forced to file a Chapter 11 if you cannot file a Chapter 7. Chapter 11 is usually reserved for businesses and is fairly complex and expensive.

The best way to find out if bankruptcy is right for you–and if you qualify–is to talk to an experienced bankruptcy lawyer.

At the Law Offices of Jason S. Newcombe, we have years of experience helping people like you get rid of their debts and make a new financial start. Call us today for a free consultation with a knowledgeable, understanding Seattle, WA bankruptcy attorney.