One common problem in filing bankruptcy is eligibility. This is where a professional lawyer can help. In some cases, you are not eligible for a Chapter 7 discharge; in others, you have too much debt to file for Chapter 13. Why?
Why is Eligibility a Factor?
Under new Bankruptcy Code eligibility for Chapter 7 is more difficult. It's clear that many more, about three times in fact, file Chapter 7 than Chapter 13. This is because you can discharge tens of thousands in debt if not more by filing Chapter 7. If you have a $50,000 medical debt, for example, and you're working a minimum wage job, it's clear you are out of other options. In this instance, you are usually eligible.
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It's because of the means test. If you are working a low-paying job, as in the example, you may pass the means test. For Chapter 7, the limit is based on the median income for your state. A single individual who makes more than $50,000 a year is likely ineligible, but if you make $20,000, you are eligible. To be clear, most state median incomes are from $35,000 to $50,000, so if you make less, you are eligible, and if you make more, you must file Chapter 13.
But why? It may be because people who were capable of affording a debt repayment plan in Chapter 13 decided instead to instead be free and clear of the debt. It's the governments' way of controlling who should benefit from bankruptcy and who should pay back all debts.
The Eligibility Requirements
If you've made more than the median income for your state in the past six months, you are legally forced to file Chapter 13. With Chapter 13, unless you have hundreds of thousands in secured and unsecured debt, you are eligible. The numbers are $1,091,400 in secured debts and $360,475 in unsecured debt. If you exceed these numbers, you are over the limit. Secured debt is assets like your home and car, and unsecured debt credit card and medical bills.
Also, if your disposable income is enough to pay a debt repayment plan in Chapter 13, you may not be able to file Chapter 7. Finally, if you filed Chapter 7 in the past 8 years, or Chapter 13 in the last 6 years, you cannot discharge any more debt.
How to Know
All you really need to do is find the median income for your state. One of the best ways is to look online; there are many law references which point out state median incomes. The best may be at http://www.usdoj.gov/ust where you can go to "Means Testing" and see the median numbers for all states.
If You Can't File
If you cannot file one bankruptcy, in most cases you are eligible for the other. Most are eligible for Chapter 13, but many can also successfully file Chapter 7. If you're unsure, contact an experienced attorney today.
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