Who Can (and Cannot) File for Bankruptcy

You qualify for Chapter 7 bankruptcy if:

• Your income falls below your state's median.
• You pass the means test if your income exceeds the median.
• You haven't filed Chapter 7 in the last 8 years.
• You complete credit counseling within 180 days before filing.

The means test checks if you have enough disposable income to repay creditors. If you fail, Chapter 13 might be an option. Chapter 7 can eliminate many unsecured debts, like credit cards and medical bills, making it suitable for those with low income and few assets. A trustee may sell non-exempt property to pay creditors.

To file, you need to provide financial documents and meet with a trustee. The process usually takes 3-6 months. While bankruptcy damages your credit, it offers a fresh financial start if you're overwhelmed by debt.

Consider alternatives like debt negotiation before filing. Speak to a bankruptcy attorney to determine if you qualify and if Chapter 7 is right for your situation.

Lastly, make sure you consult with a professional to explore your options and find the best path forward for your financial health.

Types of Bankruptcy: Chapter 7 vs. Chapter 13 and Other Options - Bankruptcy

Bankruptcy offers you legal protection from overwhelming debt, and the two main types for you as an individual are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy:
• Known as "liquidation" or "straight" bankruptcy
• Eliminates most unsecured debts in 4-6 months
• Requires passing a means test (income below state median)
• May involve selling non-exempt assets
• Best if you are low-income with mostly consumer debt

Chapter 13 Bankruptcy:
• Called "reorganization" or "wage-earner's" bankruptcy
• Sets up a 3-5 year repayment plan to catch up on secured debts
• Allows you to keep property while repaying some debts
• No means test required
• Suitable if you have higher income or valuable assets

Other Bankruptcy Options:
• Chapter 11: For large businesses and corporations
• Chapter 12: Designed for farmers and fishermen

Key Differences:
• Chapter 7 focuses on quickly discharging unsecured debts
• Chapter 13 allows debt reorganization and asset retention
• Eligibility depends on your income, debt types, and asset values

Non-Dischargeable Debts:
• Recent taxes
• Child support and alimony
• Student loans

Choosing between Chapter 7 and Chapter 13 depends on your financial situation, income, assets, and goals. Finally, consult a bankruptcy attorney to determine the best option for your circumstances.

The bankruptcy means test determines if you qualify for Chapter 7 bankruptcy. Here's how it works:

1. Compare your average monthly income over the last six months to your state's median income for a household of your size. If your income is below the median, you automatically qualify for Chapter 7.

2. If your income is above the median, you need to complete additional calculations:
• Subtract allowed monthly expenses from your income.
• Assess your disposable income for debt repayment.

3. The test aims to prevent higher-income filers who can repay debts from using Chapter 7. If you don't pass, you might need to file for Chapter 13 to restructure and partially repay your creditors.

4. Exemptions exist for disabled veterans or those with primarily non-consumer debts.

You'll need to gather income documentation for the past six months and accurately record expenses. The court will scrutinize your accounting, comparing expenses to government standards. Working with a bankruptcy attorney can help you navigate this complex process and determine your best options.

Big picture: Make sure you gather all necessary documents and consider consulting a bankruptcy attorney to guide you through the means test and your options.

You can discharge many unsecured debts through bankruptcy. These include:

• Credit card balances (except recent luxury purchases over $725)
• Medical bills
• Personal loans
• Payday loans (if unsecured)

Certain debts cannot be discharged through bankruptcy. These include:

• Child support and alimony
• Recent taxes
• Most student loans
• Court-ordered restitution

In Chapter 7 bankruptcy, your assets are liquidated to pay creditors, and remaining eligible debts are then discharged. In Chapter 13, you follow a 3-5 year repayment plan before discharging remaining balances.

Secured debts like mortgages and car loans typically aren't discharged unless you surrender the property. In Chapter 13, you may be able to modify some secured debts.

We advise you to consult a bankruptcy attorney to evaluate your specific situation and determine which debts you could potentially eliminate through bankruptcy. They can guide you on the best approach for your financial circumstances.

Overall, understanding which debts can be discharged through bankruptcy can help you make informed decisions and take control of your financial future.

You can keep certain assets when you file for bankruptcy. These "exempt" assets are protected from creditors and the bankruptcy trustee. Some common exemptions include:

• Your primary home (up to $27,900 equity under federal law)
• A vehicle (usually up to $7,000 in value)
• Necessary household goods and clothing
• Tools required for your job
• Some retirement accounts

Exemption laws vary by state, and some states let you choose between state and federal exemptions. These laws aim to help you keep essentials for living and working while managing overwhelming debt.

Most people filing Chapter 7 bankruptcy can keep all or most of their property through exemptions. Over 90% of cases are "no-asset," meaning no property is taken to pay creditors.

If an asset's value exceeds the exemption limit, you may need to surrender it or pay to keep it. A bankruptcy attorney can help you maximize your exemptions and protect important assets.

Exemptions apply differently in Chapter 13 bankruptcy but still help keep your repayment plan affordable. As a final point, bankruptcy aims to give you a fresh start, not leave you destitute.

You can file for bankruptcy as often as you need to; there’s no legal limit. However, receiving a discharge of your debts has specific waiting periods. Here’s what you need to know:

• If you previously filed for Chapter 7 bankruptcy, you must wait 8 years between discharges to file for Chapter 7 again.
• If you previously filed for Chapter 13 bankruptcy, you need to wait 2 years between discharges to file for Chapter 13 again.
• To file for Chapter 7 after a Chapter 13 discharge, you require a 6-year wait period.
• To file for Chapter 13 after a Chapter 7 discharge, you need a 4-year wait period.

Remember, these waiting periods start from the date of your previous filing, not the discharge date. Filing too soon means you won't be eligible for a discharge, though you may still benefit from an automatic stay.

If your previous bankruptcy case was dismissed with prejudice, additional restrictions might apply.

To put it simply, you can file for bankruptcy multiple times, but you must wait specific periods between discharges depending on the types of bankruptcy you file.

If you wonder "are there alternatives to filing for bankruptcy," you have several options:

You can consider a **Consumer Proposal**, where you make fixed monthly payments to settle your unsecured debts while keeping assets like your home and car.

Explore **Debt Consolidation**, which combines multiple debts into one loan with a lower interest rate. This usually requires a good credit score.

**Credit Counseling** involves working with a counselor to create a budget and negotiate with creditors, possibly leading to a debt management plan.

An **Informal Debt Settlement** allows you to directly negotiate with creditors to reduce interest rates, the amounts owed, or extend payment terms.

If you have few assets and little disposable income with debts under £30,000, a **Debt Relief Order** might be an option, lasting one year.

Make **Lifestyle Changes** such as cutting expenses, refinancing your mortgage, or downsizing to free up money for debt repayment.

A **Debt Management Plan** lets you make reduced payments based on your income, though it's an informal agreement, so legal action is still possible.

In short, consider your specific financial situation, debt types, and long-term goals. Consult a Licensed Insolvency Trustee or a credit counselor for personalized advice.

Bankruptcy severely impacts your credit score. You can expect an immediate drop of 100-200 points, with the negative mark staying on your credit report for 7-10 years. The extent of the drop depends on your pre-bankruptcy credit standing:

• If you have good credit (780+), expect a 200-240 point decrease.
• With an average credit score (680), anticipate a 130-150 point drop.

Filing for bankruptcy makes obtaining new credit extremely challenging. If approved for credit, you’ll face unfavorable terms and high-interest rates. Your existing credit accounts might be closed or restructured.

While bankruptcy is damaging, its impact lessens over time. You can begin to rebuild your credit by:

1. Paying bills promptly
2. Maintaining low credit card balances
3. Gradually applying for new credit as your finances improve

Remember, bankruptcy should be a last resort. We advise you to consult a nonprofit credit counseling agency to explore alternatives before filing. If unavoidable, view it as a fresh start to manage your finances responsibly and work towards credit recovery.

To finish, always aim to pay bills on time, keep balances low, and seek professional advice before opting for bankruptcy to protect your credit score and financial future.

You can file bankruptcy on taxes and student loans, but it's challenging. For taxes, you might discharge older debts (3+ years) if you've filed returns and there are no liens. Recent tax obligations typically can't be eliminated.

Student loans are harder to discharge. You must prove "undue hardship" in an adversary proceeding. This means showing:

• You can't maintain a minimal living standard while repaying loans
• Your financial situation is unlikely to improve
• You've made good faith efforts to repay

Most attempts fail unless you have a permanent disability or income below the poverty line. The process is complex and costly, with few people benefiting.

Alternatives exist for student loans, like income-driven repayment plans or loan forgiveness programs. For taxes, payment plans or offers in compromise may help.

In essence, before pursuing bankruptcy, you should consult a lawyer to explore all options and understand the long-term impacts on your credit and financial future.

Filing bankruptcy impacts your co-signers in different ways depending on the type you choose. In Chapter 7, co-signers receive no protection. Creditors can pursue them for the full debt amount during and after your bankruptcy. Your discharge doesn't eliminate their responsibility.

In Chapter 13, co-signers benefit from the "co-debtor stay." This temporarily prevents creditors from collecting from them while your case is active. However, they may still be liable once your bankruptcy ends.

To protect co-signers, you can:

• Include co-signed debts in your Chapter 13 repayment plan.
• Negotiate with creditors to release co-signers.
• Use a reaffirmation agreement to keep the debt and shield co-signers.

Co-signers' credit scores typically aren't affected unless they fail to pay the debt. However, they may face difficulty obtaining new credit while the co-signed debt remains.

Communication is crucial. Inform co-signers about your bankruptcy plans and discuss strategies to minimize negative impacts on their finances. To wrap up, consider consulting a bankruptcy attorney to explore the best options for your specific situation.

The bankruptcy process timeline varies based on the type you file. Chapter 7 typically takes 4-6 months from start to finish. Here's a breakdown:

1. **Pre-filing (1-2 weeks)**:
• You complete credit counseling.
• You gather financial documents.
• You prepare the petition with your attorney.

2. **Filing to 341 meeting (30-45 days)**:
• You submit the petition to court.
• You receive a case number and meeting date.

3. **341 meeting to discharge (60-90 days)**:
• You attend the creditors' meeting.
• You complete a financial management course.
• You wait for any creditor objections (30-day window).
• You receive a discharge order.

Chapter 13 bankruptcy takes longer, lasting 3-5 years. This involves:

• Developing a repayment plan.
• Making monthly payments.
• Completing the plan before discharge.

Factors affecting duration include:

• Case complexity.
• Asset liquidation (Chapter 7).
• Creditor objections.
• Court schedules.

To speed up the process:

• Gather all required documents promptly.
• Respond quickly to trustee requests.
• Complete required courses on time.
• Adhere to payment plans (Chapter 13).

On the whole, the quicker you gather documents, respond to requests, and complete courses, the smoother and faster the bankruptcy process will be.

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