Requirements for Bankruptcy – Can You File?
Description: The requirements for bankruptcy are rather straightforward, but it is how these requirements play into what type of bankruptcy you can file.
The requirements for bankruptcy are rather simple in that anyone who has debt they cannot pay can file, but their level of income is going to determine what type of bankruptcy they must opt for. This is done through a means test that is performed by the attorney. Because Chapter 7 bankruptcy is a complete discharge of unsecured debts with little or no financial obligation, causing creditors to possibly receive no money, the means test must be provided to the court as proof of the dire financial situation.
The Means Test
Basically, the means test is rather simple in that it takes a look at total income versus total expenses. To qualify for Chapter 7 bankruptcy, the test must determine that you cannot pay your debts without some kind of undue financial hardship. However, it is sometimes determined that there is enough disposable income to pay back all or part of the debt through a repayment plan. If that’s the case, the requirements for bankruptcy that a person meets are those for Chapter 13 bankruptcy.
Chapter 13 is the type that many try to avoid, but some individuals walk into the lawyer’s office knowing that Chapter 13 is the option for them. This is especially true if they have high value assets that they want to keep. Most of the time, however, a person wishes to see if they can file Chapter 7. Sometimes they do, but the court can covert the Chapter 7 filing to a Chapter 13 if at least some debt can be repaid.
Chapter 13 Requirements
In the case of Chapter 13 requirements for bankruptcy, a person simply makes more than the state’s median income. However, there are some individuals that have too much unsecured debt. If the debt exceeds $336,000, they cannot file. This doesn’t mean that there is no hope. This means that the individual may have to file for Chapter 11.
While Chapter 11 is reserved for businesses, a person who exceeds the Chapter 13 debt requirements for bankruptcy can restructure their debts under this plan. All in all, this means that almost any person experiencing financial hardships is entitled to some kind of debt relief. It is just a matter of looking at the bankruptcy requirements and determining how that relief will be achieved.