Filing for bankruptcy is a lawful way for individuals and married couples to be excused from paying some or all of their debts.
Any number of situations can happen that create financial burdens that become overwhelming. Unemployment, medical emergencies and chronic illness, among many other circumstances can lead people to consider filing for bankruptcy. Is for the greater good to have in place a lawful way for people to “dismiss their debt” and get a new start.
Chapter 7 bankruptcy is a commonly used bankruptcy law. There are certain conditions that need to be fulfilled before filing a petition for Chapter 7. In 2005, a change in bankruptcy codes was passed. It is known as the Bankruptcy Abuse Prevention and Consumer Protection Act. This law was intended to make fraudulent filings less likely. Requirements are stricter than they were formerly. The mandated process looks at income and expenses by a two-step method.
Using the BAPCPA formula, current monthly income must be calculated. This is how much money you earn each month through income, not including Social Security benefits and a few other sources, for the 6 months before the month in which you file your petition. Median family income is determined by looking median income in your county for the number of people living in your household. After you have determined these figures, you apply the following two tests to determine if you are eligible to file for Chapter 7.
Part 1 – Compare your current monthly income to the median family income in your state. If your income is less than this figure, you likely can file for Chapter 7. There are charts that show the latest median family income for each state. However, apply Part 2 to be sure.
Part 2 – Calculate your net income for the month – that is, gross income minus income and payroll taxes, and deductions for health insurance premiums. Then subtract your expenses such as mortgage or rent, auto loans, food, utilities, transportation, personal property taxes, insurance and so on. In addition, you can deduct a certain number of items like recreation and emergencies. If the amount of money is less than an amount determined by each state, you are able to file for bankruptcy.
If you fail to qualify under Test 1, you might qualify under Test 2. After calculating your current monthly income, deduct all expenses that are allowed by the IRS cost of living standards – then subtract all payments on homes, cars and secured loans from merchants. After you take these deductions, and your disposable income is less than the amount per month that is specified by your state, you qualify to file for Chapter 7.
Careful calculations and consideration of income, expenses and loans are vitally important in determining eligibility to file for Chapter 7 bankruptcy. Choose an experienced attorney to help you determine if you qualify. If you do qualify he will take you through the necessary processes to have a successful bankruptcy proceeding. Generally, there is no fee for the first consultation visit.
If you are unable to qualify for Chapter 7, you can try filing for Chapter 13, which requires repayment of some or all debts over a period of time, about 3-5 years. One thing to keep in mind is that if you go successfully through bankruptcy, you cannot file again for an eight year period for Chapter 7 and six years for Chapter 13 to receive a discharge. However, some clients file a chapter 13 earlier without needing a discharge, to stop collection harassment, car repossessions, or to stop a law suit.