The two biggest reasons an individual files for bankruptcy are loss of a job or business and or high medical debts. Experiencing both is a catastrophic combination because as your expenses are rising due to mounting medical bills, your source of income has dried up, so repayment of those bills is not possible. Many other situations can place you in a position of being unable to repay your debts such as divorce, high credit card debt, business failure, or a lawsuit. However, merely being in debt does not automatically qualify you to file for bankruptcy.
Am I Eligible for Chapter 7 bankruptcy?
Chapter 7 bankruptcy is for individuals with serious financial problems that cannot pay back their debts or bring payments current. In this type of bankruptcy, the court trustee will “liquidate” all nonexempt property to pay off creditors and then discharge the debt. There are a few factors that are taken into consideration to determine your eligibility, such as:
- How much income you have
- Your personal and housing expenses
- The level of your secured and unsecured debt
Disposable income is income you have left after covering essential living costs, or your median income. Nevadans that have filed bankruptcy after May 1, 2020 and a family of one with wages below $52,449.00 will automatically qualify for a Chapter 7 bankruptcy.
If you pass the state median income test, you will have to submit your expenses to the court trustee to determine whether your essential living expenses are truly “essential” expenses.
You will be required to pass the “means test” if your income is more than the state median income. A court trustee will determine whether you have enough disposable income to pay back your debts or qualify for a Chapter 7 liquidation.
The court will also evaluate your debt levels. If your debts are more than 50% of your annual income, then you may qualify for a bankruptcy filing.
Keep in mind that to qualify for a Chapter 7 bankruptcy, the debt you owe must be primarily consumer debt, not debt from a business.
Am I Eligible for Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is designed for individuals, including those operating as sole proprietors, whose income is above the state median income and have a significant amount of secured debt that they cannot repay. In this type of bankruptcy, the debtor has income enough to pay some of what they owe to creditors. The court trustee will review a plan to “reorganize” creditor debt, reduce secured loan balances, and allow the debtor to repay the debt over a three-to-five-year period and keep the property securing the debt.
To be eligible, individuals must show evidence that they have the means to pay down debts. Within 14 days of filing a petition, they must reveal their income sources and submit it to the court. The sources of income can vary, including pensions, Social Security payments, unemployment compensation, royalties and rent and proceeds from a property sale.
It would be best if you have completed the last four years of taxes and are up to date in the current year. You will be requested to provide transcripts, showing that you filed your federal tax returns for the past four years.
The court will then review your debts and income statements, hold a meeting with your creditors, and schedule a hearing to decide whether your proposed plan is acceptable. When the repayments are completed, the case will be discharged. This reorganization process can take three to five years.
To be eligible for a reorganization bankruptcy repayment plan, you must have (1) regular income; (2) total unsecured debts under $394,725.00; and (3) total secured debt under $1,184,200.00.
The bankruptcy rule also prohibits stockbrokers and commodity brokers from filing under Chapter 13, even if their liability is personal.
If you are having financial difficulty, are unable to repay your debt, and have no liquid assets, then bankruptcy can be a way out. Debt Rescue Law can explore all options and assist you in filing for bankruptcy if need be. Call us for a free consultation at (833) 707-1234 today.
