In Bankruptcy Information, Bankruptcy Questions

image-lawI see this question in various forms quite often. There are four main chapters (types) of bankruptcies and how and whether you qualify depends on each.

Chapter 7

This is what most people think of when they say “bankruptcy.” Chapter 7 is also called “straight bankruptcy.” Individuals who file Chapter 7 have to qualify under the Means Test. That test looks at your annual income as determined by your actual income from all sources for the last six months. All that income is added together to get a total. The total is divided by 6 to get an average. This is called your Current Monthly Income (CMI). The CMI is multiplied by 12 to get annual income. The annual income is compared to the median income for a family of your size in your county. If your income is below the median you qualify for Chapter 7. If it’s above, there is a presumption that you should be in Chapter 13. You can use our Means Test estimator to check your income.

Chapter 11

Anyone can file Chapter 11. It’s a reorganization and can be used by individuals or huge corporations. Chrysler, Delta Airlines and others have filed Chapter 11. It’s very expensive and time consuming and not suitable for most individuals or small businesses.

Chapter 12

Chapter 12 is only for family farmers or fishermen. If you’re neither of these, you don’t qualify for Chapter 12.

Chapter 13

Next to Chapter 7, Chapter 13 is the most common chapter under which individuals file bankruptcy. In Chapter 13 you make monthly payments to the Chapter 13 trustee. There are no income limitations on filing Chapter 13 like there are with Chapter 7 but there are debt limitations. For 2015 the unsecured debt limit is $383,175 and the secured debt limit is $1,149,525. If your debts exceed either of these you are not eligible to file Chapter 13. In addition, even if you do qualify for Chapter 13 it’s possible your plan will not be feasible (in other words, it won’t work). This is because under Chapter 13 you have to repay to creditors at least what they would receive if your assets were liquidated under Chapter 7. So it’s possible that you might have too much equity in your property that you can’t repay that amount within the 5 years allowed under Chapter 13.

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