Exploring the bankruptcy process can be a difficult undertaking and ought to only be considered with the assistance of competent legal counsel, and it is important for individuals who are considering filing for bankruptcy relief to look into whether they may be allowed by law to even seek protection. The process is intended to help honest individuals who have exceeded their means to pay down their debt to have a chance to get out from under those debts without those financial burdens ruining their lives. The question of who can or cannot file for bankruptcy protection also dovetails into the question of what type of bankruptcy filing they should pursue. In most cases, a Chapter 7 or 13 bankruptcy filing is what a petitioner is likely to seek.
Chapter 7 bankruptcies are typically the simplest and least time-consuming of the two most common options. The Chapter 7 bankruptcy process is intended for individuals who have low incomes and have exceeded any reasonable ability to pay down their debts within their available financial means. The court system wishes to discourage individuals from filing Chapter 7 bankruptcy simply to get out from under their debts. This leads to a series of basic requirements, sometimes called a means test, that filers must satisfy before the court will consider a petition for bankruptcy relief. Those requirements include:
The court may also wish to see evidence that the individual seeking Chapter 7 bankruptcy relief did not intentionally run up new financial obligations in order to create the appearance of additional financial hardships. Likewise, if a person has filed for Chapter 7 bankruptcy within the last eight years, the court will not accept a new bankruptcy filing. Individuals seeking relief through a Chapter 7 bankruptcy filing should also be aware that in return for discharging most of their debts that the court expects them to give up any available assets that they may own that might be liquidated in order to satisfy any outstanding obligations to any creditors. The court’s goal throughout this process is to discourage individuals from attempting to defraud creditors through the misuse of the bankruptcy system.
The baseline that the court uses to determine whether a person’s means are sufficient to pay down existing debt obligations is based upon the median income of that individual’s state. If a debtor’s means fall below the state’s median income, the court will allow that person to pursue a Chapter 7 bankruptcy filing. If an individual’s income is greater than the median income, then court will wish to see proof of how much disposable income the person has available. Disposable income is defined as income minus basic expenses, such as shelter, basic transportation, necessary clothing and food.
A Chapter 13 filing is intended for individuals and businesses that have sources of income and wish to restructure their debts rather than seeking to have those debts discharged. The foremost requirement for individuals seeking relief through Chapter 13 bankruptcy is a reliable source of income that would be expected to be useful in paying down the debts in question as a restructuring goes forward. If an individual fails to pass the means test for filing a Chapter 7 bankruptcy case, then they must either file for relief through Chapter 13 or find an alternative route to begin paying down their debts, such as a negotiated solution through their creditors.
Not all types of debt may be discharged through the use of the bankruptcy process. For example, almost all debts that are owed to or guaranteed by the federal government cannot be discharged. This includes outstanding tax bills, student loan payments and child support obligations. The court may consider discharging or reducing the amount that a debtor owes on any of the following:
The question of whether to file for bankruptcy should ultimately be addressed only with the assistance of a qualified legal professional. Our law firm works with individuals who may wish to consider what bankruptcy options are available to them, and we’ll work hard to point you in a direction that’s appropriate to your financial circumstances. We’ll assist you in learning how the process works and help you decide whether seeking bankruptcy protection is right for you.
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