Most people who call our office have a few preliminary questions about whether they are good candidates for bankruptcy.
Below are a few of these questions.
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Q: What are the criteria to qualify for bankruptcy relief?
A: Most people are eligible to file bankruptcy. The question is really whether bankruptcy will help you accomplish your financial goals.
To answer that question, you first look at three criteria:
These are: (1) the means test, (2) the current expenses vs. income test, and (3) the “totality of the circumstances” test.
You then need to consider the kind of debts you have (are they dischargeable?); your assets and how they will be affected; and your other financial goals to determine whether bankruptcy is a good fit for you.
Q: I heard it is difficult to qualify for bankruptcy relief these days. Is that true?
A: While the bankruptcy laws did change in 2005, most people still qualify for bankruptcy relief.
Q: How much debt do I need to have to file bankruptcy?
A: The bankruptcy code doesn’t specify a certain minimum amount of debt you need to file bankruptcy. (In Chapter 13, there are maximum debt limits.)
But, as a practical matter, you probably don’t want to spend the money to file bankruptcy unless your level of debt justifies the expense of filing.
You might also have an emergency situation (like a wage garnishment or foreclosure) that justifies a bankruptcy filing.
Q: I make more than the median income for my state. This means I can’t file a Chapter 7, right?
A: No. This is a very common misconception. If your income is higher than the median income in your state, you are not automatically disqualified from filing chapter 7. It just means you must take the full means test to determine if you are eligible. The means test calculation also takes into account household size.
Q: Speaking of the Means Test, what is it?
A: The short answer is the Means Test is a calculation required by the bankruptcy code. It calculates whether you have enough income to fund a debt repayment plan.
To determine this, the calculation deducts your household expenses from your household income. (“Income” and “expenses” have very specific definitions for purposes of the Means Test. But, let’s come back to that later.)
For some expenses, the Means Test limits the amount you are allowed to deduct; for some expenses, you can deduct your actual expenditures.
For most people interested in filing bankruptcy, monthly expenses exceed income. This helps demonstrate to the bankruptcy court that you need bankruptcy relief. Most of the time, people in this situation qualify to wipe out their debts without needing to go through a debt repayment plan.
Q: I used an online Means Test calculator and it told me I need to file Chapter 13. Is that true?
A: Online means test calculators are notoriously inaccurate and do not take into account the deductions you might be entitled to use under the case law of your particular jurisdiction.
You should not assume that you are ineligible for Chapter 7 relief based on the results of an online means test calculator.
Q: I’m married. Does my spouse have to file bankruptcy if I file?
A: No. You can file bankruptcy individually, even if you are married.
But, your spouse will need to provide some information about his or her income even if he or she is not filing bankruptcy with you.
And, if your spouse has considerable debt and / or you have joint debts with your spouse, it makes sense to at least consider a joint filing.
Q: I have some accounts I want to keep out of the bankruptcy. Can I do that?
A: No. All accounts and all debts must be listed in the bankruptcy.
Usually people ask this question when they want to continue making payments on a house or car. While these accounts must be included in the bankruptcy, people are almost always able to keep their house or car if they continue making payments after filing bankruptcy.
If you want to voluntarily repay a particular unsecured debt (a common example is a family loan), you have the right to voluntarily repay it after your bankruptcy case is closed.
Q: How does the court know about my assets?
A: When you file, you will give the court a list of everything you own. Your bankruptcy paperwork is filed under oath, and you can be prosecuted for perjury and bankruptcy fraud if you try to conceal assets from the court.
The bankruptcy trustees also have quite a few research tools at their disposal. They are very good at locating undisclosed assets.