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Filing for Bankruptcy: Chapter 7 or Chapter 13?
Posted By Ron On April 16, 2013 @ 6:00 AM In Debt,Money | No Comments
Regardless of whether you hire a bankruptcy lawyer  or go it alone, you’ll have to decide between Chapter 7 or Chapter 13 bankruptcy. If you’re working with a bankruptcy 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:
Chapter 7 is full bankruptcy. The court will liquidate your assets in order to pay your creditors. Chapter 13 is a reorganization plan. You’ll file a plan with the court on how you plan to pay your creditors and you generally keep your stuff.
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. The court will take into consideration your income, expenses, and your history of filing for bankruptcy must also meet certain requirements.
To be eligible to file Chapter 7 bankruptcy, you:
If your income DOES exceed 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.
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 median income tables  at The US Department of Justice  web site.
For a family of four, the range peaks at $92,205 in Connecticut and drops to a low of $47,726 in Mississippi. Quite a range, no?
“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. Bummer.
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:
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:
Under the Code, all property and assets can be defined as belonging to one of two categories:
The kinds of property that qualify as exemptions vary from state to state. Some states use their own list of exemptions exclusively. Other states allow you to choose to use the state’s list of exemptions or the list of exemptions authorized by the federal government in section 522(d) of the Code, which specifies items exempt (up to a certain value) from seizure and sale as a result of filing for personal bankruptcy. These items can include jewelry, cars, and homes.
Please don’t enter into this decision lightly. It will affect you and your family for years to come, but if you truly feel you have no other choice, arm yourself with information and create a plan for how you will alter your behavior AFTER you’re discharged. More on that later!
Note: I am not a lawyer and the information I gathered here came from www.uscourts.gov . The information contained in this article should NOT be substituted for sound legal opinion, nor cited or relied upon as legal advice.
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 median income: http://www.usdoj.gov/ust/eo/bapcpa/20061001/bci_data/median_income_table.htm
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