Contents
Bankruptcy Fundamentals
Gathering Your Financial Info
How to Find a Bankruptcy Lawyer
Should You File Chapter 7 or 13?
Exempt Property in Bankruptcies
Mandatory Credit Counseling
How to File for Chapter 7 Bankruptcy
How to File for Chapter 13 Bankruptcy
How to Get Credit After Bankruptcy
How to Improve Your Credit After Bankruptcy
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Should You File Chapter 7 or 13?
Regardless of whether you hire a lawyer, you need to decide whether you’re better off filing Chapter 7 or Chapter 13 bankruptcy. Though it’s possible to convert a bankruptcy case from one chapter to another after filing, that process is complicated and involves special court costs, not including additional legal fees you’ll likely incur.
If you’re working with a lawyer, he or she will review your financial information and suggest whether to file Chapter 7 or 13. If you’re filing on your own, the easiest way to make the choice between 7 and 13 is to assess whether you have mostly secured or unsecured debt:
- If most of your debt is unsecured debt: You should most likely file Chapter 7, assuming you meet the eligibility requirements for a Chapter 7 bankruptcy.
- If most of your debt is secured debt: You should most likely file Chapter 13, assuming you meet the eligibility requirements for a Chapter 13 bankruptcy.
Before you can actually file either Chapter 7 or 13, though, you first need to determine whether you’re eligible to file for bankruptcy in the first place. Having a significant amount of secured or unsecured debt that you can’t pay off does not automatically qualify you to file—your income, expenses, and your history of filing for bankruptcy must also meet certain requirements.
Eligibility Requirements for Chapter 7
To be eligible to file Chapter 7 bankruptcy, you:
- Must not have received a Chapter 7 bankruptcy-related discharge within the past eight years
- Must have an income level below your state’s median income
Alternatively, if your income exceeds your state’s median income, you must pass a means test, which analyzes your monthly income, expenses, and unsecured debts to determine how much money, if any, you have left over each month to put toward those debts.
Income Level and the Means Test
If you’re attempting to file Chapter 7, you must take the means test only if your income level during the six months prior to filing for bankruptcy exceeds your state’s median income level during the same time period. A majority of potential Chapter 7 filers get to skip the means test based on income. To find your state’s median income level, see www.usdoj.gov/ust/eo/bapcpa/20061001/bci_data/median_income_table.htm.
Taking the Means Test
If you’re required to take the means test, you should do so immediately after deciding to pursue Chapter 7 bankruptcy. The reason for the urgency is simple: if you don’t pass the means test, you can’t file Chapter 7, so the sooner you determine your eligibility, the better. You can find the means test online at www.uscourts.gov/rules/Revised_Rules_and_Forms/BK_Form_B22A.pdf.
“Taking” the test involves completing a six-page form that requires you to inventory and add up the financial facts of your life. Calculating the results yourself can be tricky, so it’s generally best to have a bankruptcy lawyer familiar with the test assist you. Ultimately, whether you pass or fail the means test comes down to the following:
- If your monthly income and expenses leave you with less than $166.66 per month to spend on existing debts, you pass the means test.
If you pass the means test and have not received a recent bankruptcy-related discharge, then technically you should be eligible to file for Chapter 7 bankruptcy. But the final decision on whether you qualify for Chapter 7 is made by the bankruptcy court and doesn’t occur until after you’ve filed your petition (for more information, see How to File for Chapter 7 Bankruptcy).
What If You Fail the Means Test?
Roughly 80% of potential Chapter 7 filers whose income level qualifies them to take the means test do pass the test. If you don’t pass, you have two options:
- Retake the test when you will qualify: The means test is based on financial data from the past and includes one-time expenses and income sources. So even if you don’t qualify based on the previous six months, you might qualify based on your financial situation.
- Consider Chapter 13: If the means test prevents you from qualifying for Chapter 7, you can still file for Chapter 13 bankruptcy, assuming you meet the eligibility requirements for Chapter 13.
Eligibility Requirements for Chapter 13
The eligibility requirements for Chapter 13 bankruptcies aren’t as stringent as those for Chapter 7 bankruptcies. No means test is required, and any individual can file, provided that he or she meets the following requirements:
- Debt levels: Your secured debts can’t exceed $922,975. Unsecured debts can’t exceed $307,675.
- Prior filings: You must not have received a Chapter 7, 11, or 12 discharge within four years or a Chapter 13 discharge within two years of the filing date.
- Prior dismissal: You can’t file for Chapter 13 if a prior bankruptcy petition was dismissed within the previous 180 days due to a failure to appear in court, failure to comply with court orders, or a voluntary withdrawal from the case on your part.
- Income source: You must have a regular source of income from a job or other qualified source, such as disability benefits, trust funds, or investment-related income. Your income must exceed your expenses.
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