Am I Eligible to File For Bankruptcy?
Are you overwhelmed with seemingly endless debt? You’re not alone. According to the American Bankruptcy Institute, year-over-year bankruptcy filings are on the rise across the U.S.
If you owe money you can’t afford to pay back, it may be in your best interest to consider different debt relief options, like a credit counseling course, debt consolidation, debt repayment plan, debt settlement, or even initiating bankruptcy proceedings.
This article will focus on everything you need to know about eligibility for declaring bankruptcy. Continue reading to learn:
- What is Bankruptcy?
- What Are the Most Common Types of Bankruptcy
- What is Chapter 7 Under The Bankruptcy Code?
- What is Chapter 13 Under the Bankruptcy Code?
- What Are The Tax Implications For Filing For Bankruptcy?
- How Does The Bankruptcy Process Affect My Credit Report?
- What Steps Can I Take to Rebuild My Credit After Filing Bankruptcy?
- Should I Work With a Bankruptcy Attorney?
By the time you’re finished reading, you’ll know bankruptcy basics, including what it means to file bankruptcy, the most common type of bankruptcy petition, who qualifies, and how to choose the best debt relief options for your situation.
If you have questions about your bankruptcy case, contact Ziegler Diamond Law today to speak with a trusted Florida bankruptcy lawyer.
U.S. Bankruptcy Laws – What is Bankruptcy?
According to the U.S. bankruptcy courts, “Bankruptcy helps people who can no longer pay their debts get a fresh start by liquidating assets to pay their debts or by creating a repayment plan.” Overall, there are seven types of bankruptcy proceedings. They include:
Types of Bankruptcy Proceedings
- Chapter 7 Bankruptcy for individuals, sole proprietors, and businesses
- Chapter 13 Bankruptcy for individuals, sole proprietors, and businesses
- Chapter 9 Bankruptcy for financially distressed municipalities, school districts, towns, cities, and similar.
- Chapter 11 Bankruptcy (also known as the reorganization bankruptcy for businesses)
- Chapter 15 Bankruptcy (for bankruptcy cases involving more than one country)
- Chapter 12 Bankruptcy for family farmers and fisherman
However, individuals (i.e., not businesses or entities) are only eligible to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy protection, depending on the circumstances. It’s essential to note that per the U.S. bankruptcy code, the legal process for all bankruptcy cases occurs in federal court.
Continue reading to learn more about the most common types of bankruptcy filings.
Most Common Types of Personal Bankruptcy Cases
If you’re an individual who can’t repay debts, filing bankruptcy is typically the final debt relief option. Suppose you can’t negotiate favorable terms to pay creditors or don’t have the money to repay qualifying outstanding debts. In that case, it may be time to consider filing for Chapter 7 or Chapter 13 bankruptcy.
The United States Courts oversee the bankruptcy process, including eligibility requirements. Further, the United States code informs the federal courts of eligibility for Chapter 7 and Chapter 13. Depending on the circumstances of your case, you may be eligible to receive a debt discharge under Chapter 7, or you may have to enroll in a repayment plan under Chapter 13.
Due to the financial, legal, and emotional consequences of the bankruptcy process, it’s recommended that you consult with a proven bankruptcy attorney and a financial planning professional before filing for bankruptcy.
What is Chapter 7 Under The Bankruptcy Code?
Chapter 7 bankruptcy filings are often referred to as straight bankruptcy or liquidation bankruptcy. Generally, it’s the fastest and most common bankruptcy filing. However, one downside of Chapter 7 is that you may lose ownership of some or all of your valuable assets.
In this type of “fresh start” bankruptcy, an individual can wipe out many types of unsecured debts, including but not limited to:
- Credit card debt
- Medical bills
- Personal loans (including payday loans)
- Mortgage or a car loan
- Debts owed to collection agencies
- Utility bills, HOA fees, civil court judgments (including most debts arising from personal injury cases)
It’s important to note that not all debts are dischargeable under Chapter 7. A few of the most commonly cited non-dischargeable debts include child support, student debt (unless you can prove undue hardship), certain unpaid taxes and tax debts, unaccounted unsecured debts, alimony payments, and other types of secured debt.
What Is The Chapter 7 Bankruptcy Process?
Suppose you want to file bankruptcy under Chapter 7. In that case, you’ll need to take the following steps, but not limited to:
- Submit the required financial documents
- Attend a pre-bankruptcy credit counseling course (with a government-approved organization)
- Pay your attorney fees (if you’re working with a bankruptcy lawyer)
- Pay the filing fee
- Meet with your bankruptcy trustee
- Attend the meeting of creditors
- Meet the obligations of the bankruptcy court presiding over your case
- Attend post-filing debtor education with a credit counselor
If you’re suffering from extreme financial hardship, you may be eligible for a Chapter 7 bankruptcy fee waiver.
Chapter 7 Bankruptcy Qualifications & Means Test
Before going to bankruptcy court, you’ll need to ensure you qualify to file for bankruptcy under Chapter 7. That can be accomplished in two ways:
- Current Monthly Income: If you’re considering declaring bankruptcy under Chapter 7 and your current monthly income is less than the state or federal median income (depending on the case), you automatically qualify to file.
- The Means Test: The Chapter 7 means test is a method the bankruptcy courts use to “test” whether you have enough money to pay debtors. If the test determines that you have enough disposable income to make a regular monthly payment to erase some or all f your remaining debts, you’ll be required to file bankruptcy under Chapter 13.
It’s essential to note that a debtor who files for Chapter 7 within the last seven years is not eligible to file again. Further, a bankruptcy court may deny your bankruptcy petition if you’ve violated a court order or committed fraud when filing.
Learn more about chapter 13 bankruptcy in the next section.
What is Chapter 13 Under the Bankruptcy Code?
Suppose you don’t qualify to file for bankruptcy under Chapter 7. In that case, U.S. bankruptcy laws offer another option for individuals- Chapter 13 bankruptcy.
Generally, Chapter 13 bankruptcy (also known as a “wage earner’s plan”) allows individuals with a regular income (above the median income level) to propose a debt repayment schedule to creditors to repay all or parts of their outstanding debts.
In most cases, those who file for bankruptcy under this chapter must commit to making installment payments to creditors for three to five years. The remaining debt (if any) is wiped out upon completion of the repayment plan.
However, when a debtor files under Chapter 13, they should not miss even one monthly payment. Doing so could lead to the United States courts rejecting the filing.
Chapter 13 Bankruptcy Qualifications
Generally, any individual, sole proprietor, or incorporated business is eligible to declare bankruptcy under Chapter 13. However, they must have less than $2,750,000 in unsecured and secured debts (combined) to qualify for Chapter 13 bankruptcy filings. Additionally, you can’t file under the following conditions, but not limited to:
- You filed under chapter 13 or another chapter within the last six months
- A previous bankruptcy filing was dismissed due to the debtor not following court orders
- You haven’t received credit counseling six months prior to filing bankruptcy
Learn more about What Qualifies You For Chapter 13 Bankruptcy,
What Are The Tax Implications For Filing For Bankruptcy?
Generally, filing for bankruptcy does not come with any adverse tax implications. However, if you’re expecting a refund, your bankruptcy trustee may use it to help pay off debtor files.
Further, in most cases, the debtor must file tax returns for the last four tax periods. Depending on the circumstances, the IRS may discharge personal liability tax debts paid in a Chapter 13 repayment plan so long as they are older than three years and filed on time.
It’s recommended that you consult with a tax professional about your specific circumstances before proceeding with the bankruptcy process.
How Does The Bankruptcy Process Affect My Credit Report?
The decision to declare bankruptcy can drastically affect many areas of your life, especially your credit report. That’s true whether you’re pursuing a Chapter 7 bankruptcy discharge or a Chapter 13 debt repayment plan.
Generally, individuals who declare bankruptcy should expect a very negative effect on their credit score, which can lead to an inability to borrow money or obtain a favorable interest rate. Depending on the type of bankruptcy code filed, the effects of bankruptcy can stay on your credit for 7 – 10 years.
What Steps Can I Take to Rebuild My Credit After Filing Bankruptcy?
Bankruptcy filings can devastate your credit, ability to borrow money, reputation, and much more. However, with hard work, consistency, and a solid plan, there’s a light at the end of the tunnel. Everyone’s bankruptcy case is different. However, there are a few steps you can take to rebuild your credit after filing bankruptcy.
They include, but are not limited to, the following:
- Pay your bills on time, all the time
- Don’t max out your credit cards or get too close to your credit limits
- Refrain from applying for too much credit at the same time
- Consider getting a secured credit card if you don’t qualify for a traditional card
- Become an authorized user on another person’s credit card
- Regularly check your credit reports, and fix errors as soon as they arise
Should I Work With a Bankruptcy Attorney?
Suppose you’re considering bankruptcy but aren’t sure if you should hire an attorney. In that case, you may want to consult with a bankruptcy lawyer if you’re worried about the following:
- Dealing with the complicated bankruptcy process on your own
- Handling the paperwork
- Endless calls from debt collection companies
An attorney can give sound legal advice, provide materials to the bankruptcy courts, represent you at hearings, and offer alternative solutions. It’s important to note that if you can’t afford a lawyer, you may qualify for free legal services in your area.
Bottom Line: If you’re thinking about filing bankruptcy in Florida, you don’t have to go through the process alone. We’re here to help you every step of the way. Contact Ziegler Diamond Law today for a free initial consultation with an experienced bankruptcy attorney.