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What if I Do Not Qualify for Chapter 13 Bankruptcy?

Posted on in Chapter 13 Bankruptcy

What if I Do Not Qualify for Chapter 13 Bankruptcy?

If you are struggling with an intense level of personal debt, consider filing for bankruptcy. Individuals in this situation can file for Chapter 13 or Chapter 7 bankruptcy, depending on the chapter for which they qualify. Often, it is easier to qualify for Chapter 13 bankruptcy, but this is not always the case.

Consider Chapter 7 Bankruptcy

You might have heard the advice to consider Chapter 13 bankruptcy if you do not qualify for Chapter 7 bankruptcy. Typically, this is solid advice that many individuals struggling with debt can use to work their way out of “the red.” To qualify for Chapter 7 bankruptcy, an individual must pass the Means Test. Those who earn less than their states' annual median income automatically pass this test. It is also possible to pass if the Means Test formula determines that you do not have sufficient disposable income to commit to and complete a Chapter 13 repayment plan.

Disposable income, the money you are calculated to have available after subtracting required payments like car payments and taxes from your monthly income, is the difference between qualifying for Chapter 7 and Chapter 13 bankruptcy. If you do not qualify for Chapter 13 bankruptcy, talk to your lawyer about filing for Chapter 7 bankruptcy. This form of bankruptcy can be much more extreme than Chapter 13, but when you are suffering under the weight of personal debt that you cannot realistically repay without help, it can be the only way out. In a Chapter 7 bankruptcy case, the filer's nonexempt assets are liquidated to turn a profit, which is then used to repay his or her debts.

Why You Might Not Qualify for Chapter 13

Aside from not having enough disposable income for a repayment plan, you can be disqualified for Chapter 13 if you have too much debt. Currently, individuals who have more than $1,184,200 in secured debt cannot file for Chapter 13 bankruptcy. Secured debt is the debt that is backed by collateral, such as a mortgage on a home. The home is collateral and if the borrower cannot repay his or her mortgage loan, the lender may repossess the home through foreclosure. For unsecured debts, debts that are not backed by collateral, the limit for filing Chapter 13 bankruptcy is $394,725. These figures are raised every few years to keep up with inflation.

Work with an Experienced Rolling Meadows Bankruptcy Lawyer

If you are considering filing for bankruptcy, be sure to discuss your situation and your plan with an experienced bankruptcy lawyer before moving forward. An experienced bankruptcy lawyer can examine your circumstances and your plan to give you appropriate advice about moving forward You might find that you have other options that work better for your situation than your original plan. Contact our team at Newland & Newland, LLP today to set up your initial consultation in our office. We serve clients in the Arlington Heights, Palatine, Rolling Meadows, Libertyville, Mundelein, Buffalo Grove, Schaumburg, Elk Grove, and Itasca areas.

(image courtesy of Julian Santa Ana)

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