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Most bankruptcies are filed because of credit card debt that resulted from consumer charges. That is, most bankruptcies have mostly credit card debt that is incurred for personal or household purposes. The credit card companies and their congressmen recently passed a law that restricts access to Chapter 7 for some people with primarily consumer debt. So, if an individual has primarily consumer debt, he must qualify before he can file a Chapter 7. A major part of this qualification is called the means test. That is, the Chapter 7 debtor must show that his income (his means) is less than a certain amount before he can file a Chapter 7. The amount that he can earn and still qualify for a Chapter 7 is determined by his income, his taxes, his expenses, where he lives and the size of his family. The means test is a complicated analysis. Passing it or failing it can turn on income and expenses that are as little as $50 too high or too low. If the bankruptcy is improperly prepared and the debtor fails the means test and his bankruptcy is dismissed, it may not be possible to file it again. If the debtor fails the means test and opts to switch his bankruptcy from a Chapter 7 to a Chapter 13, the debtor becomes locked in a pay-out type bankruptcy that lasts 5 years. So taking your time and doing it right the first time is not just smart, it may be absolutely essential - it could determine your entire financial future. This is especially true for those who fall on the edge of the means test. The days of quickie bankruptcy are over for all but the foolish and those who fall well below the mean. |
Some individual debtors have debts that require a Chapter 13 or a Chapter 11. Chapter 13 is a highly structured bankruptcy that lasts for 5 years and permits the debtor to pay back some of what he owes. It also has another significant advantage. It provides that the pay back can be taxes and back mortgage payments. So, most people file Chapter 13 in order to stop foreclosures or IRS wage garnishments. Another reason why people file Chapter 13 is because they can't pass the means test and they have no other choice. When they do, the have to pay what the bankruptcy code requires for 5 years in order to obtain a discharge of the remaining (unpaid) debt. Chapter 13 can also be used to restructure unincorporated businesses. We often refer non-business Chapter 13 cases to other counsel. We often suggest a Chapter 11 for the consumer debtor rather than a Chapter 13, because with a Chapter 11, one can have the restructuring capacity of a Chapter 13 and be out of bankruptcy in a matter of months rather than a matter of years. There are other significant reasons to file a Chapter 11 for an individual, especially where the individual has significant tax debt. |
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