Most people qualify either for chapter 7 or chapter 13. Some people qualify for both. A few don't qualify for either one. Please call Attorney Bates at 330-339-0000 for free answers to your questions.
Types of persons
Individuals and businesses can file chapter 7. Only individuals, including sole proprietors, but not corporations or partnerships, can file chapter 13.
Debt limits
There are no debt limits in chapter 7. In chapter 13, you can have no more than approximately $419,000 in unsecured debts and approximately $1,257,000 in secured debts. These limits change every three years. (Please call Attorney Bates, 330-339-0000, for exact amounts.) Unsecured debts include credit cards, student loans, personal loans, most tax debts, medical bills, old unpaid rent, child support, spousal support, and restitution debts. Secured debts are secured by collateral including mortgage loans, car loans, mechanic’s liens, and some finance company loans. If you exceed the debt limits, you will probably have to file a chapter 11.
The means test
This test must be applied to determine whether a person must file chapter 13. If a person "fails" the means test, they cannot do chapter 7. They must file chapter 13. There are three steps:
1. Are you exempt from the means test?
If you have more business debt than personal debt, you are exempt from the means test. So are certain military members and veterans. If you are exempt, the means test does not require you to file chapter 13. But there may be other reasons why you must, or will choose to, file chapter 13. Examples are that you have property that you will lose if you file chapter 7, or you are behind on debts that require you to make payments to get caught up to keep collateral, such as motor vehicle loans, mortgage loans, and taxes, or you have too much money left over each month after you pay your necessary living expenses.
2. Do you pass the means test?
The test requires you to compare your gross annual household income to the "average" income for a family of your size in your geographical area. If your income is not greater than the average income, you'll pass the means test and will qualify to file chapter 7.
3. If your income is above average, take the second part of the means test
If your gross income is above the "average," you can take the second part of the means test by deducting certain allowed expenses to see if you may still pass the means test. You'll be eligible for chapter 7 if you don't have enough income to pay into a chapter 13 plan after making these deductions. If you do have enough income after making these deductions, you will have to file a chapter 13 and cannot file a chapter 7.
Disposable income test
Even if you pass the means test, if you have enough disposable monthly income after you pay all your living expenses to make payments on your debts, you must file chapter 13 and make monthly payments for 36 months. This happens sometimes when the debtor has no car payment and a low rent payment. In this situation, the payment is determined by how much the debtor’s budget allows, not by the amount of the debt. So, often, the debtor will be able to pay off his/her debts at far less than 100% of what is owed. If you happen to be in this situation, we often can give you advice on steps you can take that will eliminate this problem and allow you to file a chapter 7 without having to make payments in a chapter 13. Please call Attorney Bates at 330-339-0000 if you’d like to discuss this at no charge.
Chapter 13 payment amount
If you must file chapter 13, you must have enough income after paying your monthly living expenses to cover the larger of the following over five years in monthly payments:
1. All of the debts that can't be wiped out in bankruptcy and on which you must get current
These are debts such as taxes, spousal and child support arrearages, house payment arrearages, and car payment arrearages. You must have enough income to pay these arrearages and bring these debts current in 60 months of payments.
2. The nonexempt value of any property
If you own real estate or a motor vehicle with high value that is paid off or some other item of property you want to keep that you will lose if you file a chapter 7, you will have to file a chapter 13 and pay enough over 60 months to equal the nonexempt value of the property.
3. Your disposable monthly income
This is the amount left over each month after subtracting monthly living expenses from your take-home income. You must pay at least this amount for three to five years depending on whether or not you passed the means test. If you passed it, you will have three years. If you did not, you will be in chapter 13 for 5 years.
You may not be able to afford a chapter 13 although you must file or want to file it
It is possible to need to file chapter 13 because of the means test or disposable income test or to protect equity in property or to make catch-up payments to avoid a repossession or foreclosure and keep an asset, and not have enough income to make the chapter 13 payments to do it. That makes chapter 13 impossible because you do not have enough income, although you need to do it. That will require you either to file the chapter 13 anyway or perhaps file a chapter 7, if you qualify, and take the consequences. such as giving up property you wanted to keep. Otherwise, if you don't file bankruptcy you will have to deal with your situation in some other way. Please call Attorney Bates at 330-339-0000 to discuss this at no charge.
If you choose to file chapter 13
People who qualify for Chapter 7 but choose to file Chapter 13 don't need to follow most of these rules. They pay according to their budget over three years and they can extend the period to five years if it's more manageable. Please call Attorney Bates, 330-33-0000, to discuss this at no charge.
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