It may seem like an odd question. “Do I make too much money to file for Chapter 7 bankruptcy?” or “Am I in too much debt to file?” At a time when your financial situation is already on shaky ground, these questions can cloud your decision on whether you should file.
An experienced bankruptcy lawyer can sit down with you and answer these questions and more. But here are a few guidelines to help you gauge how seriously you should consider bankruptcy.
How Much Do You Have to Be in Debt to File Chapter 7?
There is no limit on the amount of debt you can carry into a Chapter 7 Bankruptcy. Your level of debt shouldn’t be one of your concerns when wondering if you qualify.
When to File Bankruptcy
Moving forward with a filing when you’re not ready or qualified can end in rejection and delay your chance to file down the road when you may really need it. It can also force you to give up assets you may have been able to keep had you chosen a different path.
Here are a few things to consider when you think about filing for Chapter 7 Bankruptcy.
- Consider what types of debt Chapter 7 gets rid of. Will this help you in your unique situation?
- Consider your ability to repay the debt that isn’t relieved in Chapter 7 bankruptcy. Things like child support and tax debts don’t get absolved. You’ll still need a plan to pay these debts off.
- Consider how willing your creditors are to work with your circumstances. This cooperation may decide whether you should seek bankruptcy or not.
- Consider the property that you might lose by filing now. You may be able to hold off on filing and sell that property. The money could hopefully go towards your debt instead of being claimed by creditors.
- Consider waiting to file when you have more debt on the horizon. Filing for Chapter 7 bankruptcy will only help you discharge the debt you have as of the filing date. When you have unavoidable expenses coming up, it’s best to wait for those to hit your account so they are included in the discharge of debt at the end of your filing.
Will Filing for Chapter 7 Eliminate Your Debts?
There are some debts that Chapter 7 bankruptcy can’t help you with. If you’re filing for relief from non-dischargeable debts, you probably won’t want to file for bankruptcy.
Non-dischargeable debt includes some of the factors mentioned above but also encompasses student loans, alimony, recent luxury purchases, and debts arising from fraud, like writing a bad check, and criminal behavior.
Deciding When to File for Bankruptcy
There are other factors to consider before you move forward with a bankruptcy attempt:
Carrying a large percentage of unsecured debt can mean a Chapter 7 filing is a good option for you. Unsecured debt can include credit card debt and medical bills among other things.
Secured debts are those guaranteed by a collateral property. A mortgage or a car loan are examples of secured debt. The house and the car serve as the collateral. When you are behind on these payments, certain types of bankruptcy can delay foreclosure or repossession. Bankruptcy can give you extra time to catch up on payments.
Your Job Status
Chapter 7 is a viable solution for those who are unemployed and have little in the way of assets. It can also provide a path to forgiveness for someone with a high-paying job and many assets.
For an unemployed filer, bankruptcy can provide time to catch up on bills that you’ve had trouble keeping current.
For those employed and still unable to keep pace with creditors, a bankruptcy can provide relief from unsecured debt and free up time to pay towards secured assets like a home or vehicle to hopefully retain them.
Bankruptcy Filing Fees
You will need to have enough money freed up to pay the costs of filing and to pay the legal experts who help make sure your bankruptcy documents are accurate and on time.
These costs are minimal for the most part and won’t compare to your debt, but they don’t get erased when you reach the end of the bankruptcy process. You’ll also need some money for financial courses the court requires.
Do I Have Too Much Debt or Income for Chapter 7 Bankruptcy?
There is no limit to the debt you can bring into a Chapter 7 bankruptcy filing. It doesn’t matter how little or how big your debt is, you are allowed to access the benefits of Chapter 7 bankruptcy.
However, your income can hold back your bankruptcy bid. The average income of families like yours in California will be the bar you’ll be measured against. This is known as a Means Test. It’s designed to identify potential filers who have too much income to truly require a Chapter 7 bankruptcy.
If you bring in less than the average family of your size, then you’ll likely be permitted to file. If you make more than the average California family, you are required to pass a few more hurdles.
Your disposable income, the money you have left over after your monthly expenses, is calculated. When what’s leftover is enough to make a sizable payment towards your debt you will be exempt from Chapter 7 benefits.
Choosing a Different Type of Bankruptcy
Perhaps you still feel you’ll require bankruptcy help after failing a Means Test. You can then look into filing for Chapter 13 protection.
Reasons for Choosing Chapter 13 Bankruptcy
Chapter 13 is often the best choice when you have a lot of property you’d like to hold onto. Chapter 13 bankruptcy can provide you breathing room on foreclosure and repossession. You’ll have a longer period to get back in good graces with your loan providers.
Chapter 13 bankruptcy still allows you to discharge some of your unsecured debt.
Reasons for Converting from Chapter 13 to Chapter 7
Chapter 13 involves a payment plan that extends three to five years from your discharge date. You have to repay the debts that are not erased.
If you are keeping up with those payments, it is a good way to dig yourself out of a financial hole at a discount on your debt. But if you lose your job or if you are somehow unable to work, your Chapter 13 payment plan can falter. You might need to switch to a Chapter 7 Bankruptcy.
Chapter 7 bankruptcy is also faster. You can often start rebuilding your credit score much quicker. It’s difficult to build your credit score while you are paying Chapter 13 payments over several years.
Contact A Los Angeles Bankruptcy Lawyer Serving Southern California
Bankruptcy is a powerful legal tool meant to offer a new beginning to those who are backed against a financial wall. There are circumstances that can block your path to financial freedom when hoping to file Chapter 7 bankruptcy. Even if that’s the case, there are plenty of other options that can prove right for you.
A bankruptcy attorney with a strong background in defending clients going through desperate financial times is the best person to guide you to the right choice. Elena Steers, the founder of The Law Offices of Steers & Associates, has experience on both sides of the California bankruptcy process. Take a moment and read about her extensive background.
For a free bankruptcy consultation in Los Angeles or anywhere across Southern California please contact us today. The Law Offices of Steers & Associates handle bankruptcy cases of all sizes and have stood by their clients through difficult times and helped them find financial freedom.
Elena Steers is a highly experienced bankruptcy attorney, the founder of Law Offices of Steers & Associates, and previously worked as a Bankruptcy Trustee Assistant at the Office of the Chapter 13 Trustee in Los Angeles. Her current affiliations include the State Bar of California, National Association of Consumer Bankruptcy Attorneys, and Central District Consumer Bankruptcy Attorneys Association.