Which Chapter Does Your Bankruptcy Belong In?
In 2005, a major change was made to how Chapter 7 Bankruptcy is processed in the United States. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 instituted a means test to determine whether an individual should file for Chapter 7 or Chapter 13 as well as some other new requirements. Chapter 11 is typically for small businesses and will not be addressed in this article. Many may dispute how much abuse has been prevented and just how consumers are being protected by this law. Anyway, let us now focus on the means test requirement.
Test Your Means, Does It Amount to More Than a Hill of Beans?
The means test will determine whether you are eligible for Chapter 7 or 13. If you make more than the median income for your state, California’s median income for a single earner is $48,415, then you will have to file for Chapter 13. Why is this important? Chapter 7 liquidates your debts quickly whereas a Chapter 13 filing entails a 3-5 year payment plan with a strict budget. More on that in a moment.
What Does Chapter 7 Bankruptcy Mean to Me?
Chapter 7 bankruptcy is the most common form filed and we are experts on it here at the Law Offices of Ted A. Greene. Many of our clients ask what Chapter 7 requires. We do not need all of this information in the first consultation but as we work with you we will require:
- A complete list of all creditors as well as the specific amounts and the nature of each claim
- The origin, amount, and frequency of our client’s income
- Last 2 years of most recent tax returns
- Previous 6 months of bank statements
- A list of our client’s property and all assets
- A detailed breakdown of each client’s monthly living expenses including: food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Regardless of whether a married person is filing jointly or individually, the court requires this information for their spouse as well to evaluate the financial position of our client’s household. The state of California has its own exemption systems as allowed by federal law and requires each debtor filing for bankruptcy to use one of two schedules. We won’t get into the specifics of the property exemptions allowed in this article but it is extensive. Once you have properly filed for Chapter 7 bankruptcy your debts can be resolved in as little as 4-6 months.
Why Would I File Chapter 13?
The main reason many people file for Chapter 13 is because they make too much money to qualify for Chapter 7. An income that is higher than $48,415 for a single earner in California will typically push you over into Chapter 13. There are some deductions that can keep you in a Chapter 7 if you are slightly over the median income but we won’t address their complicated nature here.
The main feature of Chapter 13 is the repayment plan. This plan allows you to address your debts in payments as negotiated by the bankruptcy trustee. The plan is proposed in “good faith” with the full intention of completing the payments. The Chapter 13 repayment plan may take 3-5 years to complete. Many creditors owed for unsecured debts may receive as much as they would have in Chapter 7 bankruptcy, meaning nothing. If one is unable to complete a payment plan on Chapter 13, a Chapter 7 may be allowed after the failure of the payment plan. Many may use an emergency Chapter 13 filing to stall a foreclosure long enough to complete a short sale. There are restrictions in Chapter 13 which will require one to seek approval before applying for substantial new debt such as a car loan. While we do not process Chapter 13 filings here at the Law Offices of Ted A. Greene, we can refer you to someone who is quite capable.
What Should I Do?
If you are a California resident and are tired of creditors harassing you, tired of feeling overwhelmed and under-informed, or you just want to know what your options are please contact me, Ted A. Greene, today at 916.442.6400. Either a member of my experienced staff or I will talk to you. Your initial consultation will cost you nothing more than your time. You can also complete the form on our Contact Us page and we will call you. I personally guarantee I can process your Chapter 7 bankruptcy for less than any other attorney in the Sacramento metropolitan area, come in, sit down, and we can help you chart a better financial future for you and yours.