Every year, hundreds of thousands of people file for bankruptcy. But recently, those filings have risen by a shocking 13%.
With so many bankruptcy filings, you may have the impression that people are throwing in the towel the second times get hard. But believe it or not, bankruptcy requires you to meet more qualifications than just being broke. Chapter 7 bankruptcy income limits could prevent you from filing- or make it harder.
What is Chapter 7 bankruptcy, what are the income limits, and what key things should you know about them? Before getting legal representation, read this.
What Is Chapter 7 Bankruptcy?
There are several different types of bankruptcy for both individuals and businesses. The most common type is Chapter 7.
This is when any non-exempt assets can be put up for sale to pay off your creditors, i.e., liquidated. You lose everything but the house, the car, and the dog. However, it’s the form of bankruptcy that gives a person a clean slate to start anew with the help of Lundberg Law.
What Are Chapter 7 Bankruptcy Income Limits?
To prevent abuse, regulators enforce a bankruptcy means test. Chapter 7 eligibility requirements demand an examination of your current income compared to the median. So, if your family is making less income than the median for that family size, you can declare.
Luckily, if you fail that test, there is a second option. Experts will tally your expenses and weigh them against your income. This is to determine if you are capable of paying off debts, even if your income is above the median.
Key Things to Know About Chapter 7
What should a person filing for bankruptcy know about the process? Here are a few items to keep in mind.
Chapter 11 and Chapter 13 Bankruptcy
If you don’t qualify for Chapter 7, the next option is Chapter 11. This is where you put your affairs in order by submitting a restructuring plan.
Chapter 13 bankruptcy is something of a court-mandated debt consolidation. Also known as the “Wage Earner’s Bankruptcy,” this is more for people who have fallen behind on their day-to-day debts. You’re able to consolidate them to pay them off without accruing too much interest.
Means Test Exceptions
There are two situations where you don’t need to worry about the means test. Number one, when 50% of your debt is business-related. Number two, when you are a disabled veteran, so the income limits don’t apply.
Allowable Expenses
If you go for an expense-based bankruptcy, certain things do and do not count as expenses. Some items like taxes and Social Security payments do, despite being part of your citizenship burden. Others, such as wage garnishments, do not.
Understand Secured and Unsecured Debt
Secured debt refers to items you are paying for that can be taken back to recoup the debt. Unsecured debt is anything not tied to a physical item- say, medical debt. Bankruptcy usually covers unsecured debts, meaning you can keep the car and the house.
Determine if You Qualify for Bankruptcy
Chapter 7 bankruptcy allows someone to liquidate their assets to pay off creditors. To qualify, you must meet Chapter 7 bankruptcy income limits. Otherwise, you must file based on expenses rather than median income.
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