This post was prepared by yours truly, with contributions from Phil Bradford, a financial web content writer. Phil graduated from New York University School of Law and recently joined Herald University as a reporter. He has also written for websites such as debtfreeguys.com and disabilitycanhappen.org
An now, on with the post…
Those who’ve exhausted their financial options or are unable to meet obligations due to illness, divorce, job-loss, or other life-altering events, may consider filing Bankruptcy to get their life back on track. Here is a quick-guide to help you navigate the process with the help of a good Bankruptcy Lawyer:
Basic Types of Bankruptcy
The most basic distinction when thinking about Bankruptcy is the one between a liquidation (Chapter 7) and a reorganization (Chapter 13 for most people). Whether you need to file a Chapter 7 or 13 case will depend on several factors, including:
That said, below you will find a few of the most important points when considering if Bankruptcy is right for you.
Debts Discharged in Bankruptcy
Typical debts discharged in Bankruptcy include:
Debts Not Discharged in Bankruptcy
While there are exceptions, the following types of debts are considered nondischargable:
Costs and Fees
Every legal remedy has a cost associated with it – both a government imposed filing fee and accompanying Attorneys’ fees. Currently, the filing fees for the most common types of consumer Bankruptcy are:
$335 Chapter 7 liquidation
$310 Chapter 13 reorganization
In addition to standard filing fees, since the Bankruptcy laws underwent a major shift in 2004 additional mandatory expenses have been added in the form of due diligence requirements.
Qualifying for Bankruptcy
The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) introduced an entirely new set of criteria related to filing Bankruptcy.
BAPCPA introduced the first test to determine who was eligible to file Bankruptcy under a given chapter; the Means Test.
The Means Test uses census and IRS records to determine average incomes and expenses in every State and zip code in the country, then calculates monthly disposable income by subtracting expenses from income (using an average of the past 6 months). If the result is below the median for your State, you can file Chapter 7 liquidation. If it is higher than the median then, with some exceptions, you must file a Chapter 13 Plan of Reorganization.
As set out in Form B 122A-2, the Chapter 7 Means Test is calculated as follows:
Take income for the last 6 months, then subtract
The prescribed IRS living expenses for your area
And compare the resulting number with the total
Amount to pay down secured and priority debts
If the result shows that you make less than median income you may file a Chapter 7
If the result shows that you make more than median income you must file Chapter 13
Other Due Diligence Items
Other requirements for filing Bankruptcy were also introduced by BAPCPA:
Coming Soon: Part II: The Case
We hope this overview was helpful. If you think that Bankruptcy might be right for you, please contact us using the e-mail link at the end of this post, or give us a call. We are always happy to help.