Filing Bankruptcy

When deciding to file bankruptcy, the amount of debt you have and your income are factors. It is possible to have too much disposable income to file chapter 7 and too much debt to file chapter 13. An indicator of too much debt (for a chapter 13) is whether or not you owe more than 360,475.00 on unsecured debts and more than 1,081.000.00 on secured debts, but this does vary.

Firstly, you will need to establish eligibility to file under the different chapters, usually 7 & 13.  To find out if you are eligible for chapter 7, you will need to take the ‘means test’.

The means test looks at your average income over the previous six months and this is measured against the median for your state. If you are below the median, you qualify for chapter 7. If you do not qualify on the basis of this simple test, you may qualify on the grounds of your disposable income. Therefore, careful account must be taken of what you and your family need to maintain yourselves and the amount left is the disposable income. The second means test is a more complex analysis of your anticipated disposable income over the next five years to gauge what you can reasonably be expected to pay unsecured creditors. Depending on the results of this test, you may still qualify for chapter 7, or you may be limited to chapter 13. Both tests vary according to the state and even county, but the formula for calculation stays the same.

Having determined eligibility to file chapter 7 or 13, there are costs of approximately $300 to file and documents that need to be gathered including photo identification. These filing fee costs do not include attorney’s fees.

Firstly, credit counseling with an approved agency is an obligation, and it must occur within 180 days before filing. The credit counseling agency issues a certificate which is filed with the bankruptcy court.

Secondly, other documents need to be filed within 45 days of filing. Documents related to income are essential. You will need to provide evidence of your income from all sources, employment and other sources, during the six months before filing bankruptcy and of your usual monthly income. In addition, you will need to file a statement speculating on any changes, either increases or decreases, in your expenses and your income in the future.

In addition to income, your tax status must be clarified not only to the tax agency in your area but also to the bankruptcy court. To do this, you need to provide evidence of your most recent tax return, any past due taxes and any tax returns that come due during the bankruptcy process.

You will need to provide information about your assets. This relates to real estate and cars, insurances, bank accounts, stocks and shares, and retirement funds.

One of the most important pieces of information you must supply is a complete list of your creditors. The more information you can supply about your debts the better. This includes not just the amount of the debt but when it was incurred and the account number.

Full disclosure is the best approach to ensure the most positive outcome and eliminate the risk of an unfavorable action on the part of the court.

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