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Written by Canterbury Law Group

Chapter 13 Debt Repayments

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hapter 13 bankruptcy is often referred to as a “wage earner’s plan” because it allows individuals with a regular income to create a repayment plan to pay back all or a portion of their debts over three to five years. Here’s an overview of the debt repayment process under Chapter 13 bankruptcy:

Key Features of Chapter 13 Debt Repayments

  1. Repayment Plan
    • Duration: The repayment plan typically lasts three to five years. The specific length depends on the debtor’s income relative to the state median income.
      • If the debtor’s average monthly income is below the state median, they may complete their plan in three years.
      • If the income is above the state median, the plan will usually last for five years.
    • Plan Submission: The debtor must submit a detailed repayment plan to the court for approval, outlining how they intend to pay off their debts.
  2. Types of Debts Included
    • Chapter 13 can include various types of debts, such as:
      • Secured Debts: Mortgages, car loans, etc. The debtor can keep their property while making payments.
      • Unsecured Debts: Credit card debts, medical bills, personal loans, etc. Unsecured debts are often paid at a reduced amount.
    • Priority Debts: Certain debts must be paid in full during the repayment period, such as child support, alimony, and certain taxes.
  3. Payment Structure
    • Monthly Payments: The debtor makes regular monthly payments to a bankruptcy trustee, who then distributes the funds to creditors according to the repayment plan.
    • Amount of Payments: The amount paid each month depends on the debtor’s income, expenses, and the total amount of debt. The court will review the plan to ensure it is feasible and meets legal requirements.
  4. Protection from Creditors
    • Once Chapter 13 is filed, an automatic stay is enacted, which temporarily halts most collection actions, including lawsuits, wage garnishments, and foreclosure proceedings. This provides breathing room for the debtor to implement the repayment plan.
  5. Court Approval
    • The proposed repayment plan must be approved by the bankruptcy court. The court will hold a confirmation hearing where creditors can object to the plan, although objections are not common.
    • If the plan is approved, it becomes a court order, and both the debtor and creditors must comply with its terms.
  6. Modification of the Plan
    • If the debtor’s financial situation changes during the repayment period (due to loss of income or unexpected expenses), they may be able to modify the repayment plan. This requires court approval and is typically evaluated on a case-by-case basis.
  7. Completion of the Plan
    • Upon successful completion of the repayment plan, the debtor receives a discharge of any remaining unsecured debts included in the plan. This means they are no longer legally required to pay these debts.
    • However, certain debts, such as student loans, some taxes, and child support, will not be discharged.
  8. Consequences of Non-Compliance
    • If the debtor fails to make the required payments or comply with the terms of the plan, the bankruptcy court may dismiss the case or convert it to Chapter 7 bankruptcy. This could result in the loss of the automatic stay and creditors resuming collection actions.

Benefits of Chapter 13 Debt Repayments

  • Retain Assets: Debtors can keep their property (e.g., home, car) while making payments, as long as they continue to make those payments.
  • Flexible Repayment: The repayment plan can be adjusted based on the debtor’s income and expenses, making it more manageable.
  • Discharge of Unsecured Debts: At the end of the repayment period, remaining unsecured debts are discharged, providing a fresh start financially.

Chapter 13 bankruptcy provides individuals with a structured repayment plan to manage their debts while retaining their assets. It allows for flexibility in payments and protects the debtor from creditor actions during the repayment period. For those considering this option, consulting with a bankruptcy attorney is advisable to navigate the complexities of Chapter 13 bankruptcy and create a feasible repayment plan.

What Makes You Eligible for Bankruptcy Under Chapter 13?

The advantage of this chapter is that you can use a three- to five-year repayment plan to pay off part, but typically not all, of your debts. However, you must complete the official bankruptcy papers and provide proof of the following before the court “confirms” (approves) your plan:

Current with tax returns while staying within debt amount restrictions
Employed, have sufficient income to meet the required monthly payment, and are an individual rather than a business (however a sole proprietor’s business’s finances are included in the bankruptcy).
You Must File Your Income Taxes Current.
You need to provide evidence that you submitted your state and federal income tax returns for the four tax years prior to the date of your bankruptcy filing in order to file for Chapter 13. The court may postpone the proceedings if you need more time to stay up to date on your files, but you shouldn’t rely on this. Ultimately, though, your Chapter 13 case will be dismissed if you fail to submit your returns or transcripts of the returns for those four years.

Find out why the court can reject your case.

You Need to Make Enough Money for Your Own Needs

In order to be eligible for Chapter 13, you must demonstrate to the bankruptcy court that you will have sufficient income to satisfy your repayment obligations after deducting certain permitted expenses and mandatory payments on secured debts (like a mortgage or auto loan). If you don’t pay off some debts completely, the judge won’t approve your plan and let you move on.

The following sources of revenue can be used to finance a Chapter 13 plan:

Regular pay or salary money from self-employment commissions from sales or other work earnings from seasonal labor pension payments
Social Security income
Perks for workers’ compensation or disability
Public benefits (welfare payments) such as unemployment compensation, strike benefits, and the like
Alimony or child support You get income from selling property, especially if it’s a component of your main business property, as well as royalties and rents.

It’s not always the case that your married income has to be “yours.” A non-working spouse may file tax returns on their own and deduct their working spouse’s income. A spouse who is jobless may file jointly with a spouse who is employed. Find out more about the repayment plan for Chapter 13 bankruptcy.

Why File for Bankruptcy Under Chapter 13?

Because Chapter 7 bankruptcy does not force the filer to repay creditors, it is the preferred option for many people. However, certain debtors are ineligible. Some, on the other hand, decide that filing under Chapter 13 bankruptcy is a preferable alternative because it offers possibilities not available under Chapter 7.

The following is a list of typical justifications for filing a Chapter 13 case:

A debtor is not qualified to get a Chapter 7 discharge and eliminate qualifying debt if their income surpasses the limit allowed by the Chapter 7 means test.
If a homeowner falls behind on their mortgage payment, they can pay the arrearages over a period of three to five years and still maintain their home (this also applies to past-due auto payments).
If a debtor completes a repayment plan and pays off late support, taxes, or other nondischargeable obligation, they can avoid collection actions like wage garnishments.
Nonexempt property that would otherwise be liquidated in a Chapter 7 bankruptcy can be retained by the debtor; however, the nonexempt component must be paid for over the course of the three- to five-year repayment plan.

Further Chapter 13 Conditions

A substantial income is a prerequisite for Chapter 13 eligibility, but there are additional requirements as well.

You Cannot Have Too Many Debts

If you have more debt than a particular amount, including secured and unsecured, you will not be eligible for Chapter 13 bankruptcy. Begin by familiarizing yourself with the most recent Chapter 13 debt restrictions and methods for meeting them. The U.S. Courts Chapter 13 Bankruptcy Basics webpage allows you to confirm the amounts.

A debt is considered secured if, in the event that you fail to make payments to the creditor, you could lose the particular property you pledged as collateral. The most typical types of secured debts are auto and home loans. However, if a creditor—like the IRS—has placed a lien (notice of claim) against your property, a debt may also be secured in this way.

A creditor does not have the authority to seize specific property in response to an unsecured obligation. Credit card debt, medical and legal costs, past-due utility bills, and department store charges are among the many types of unsecured debts. Read Types of Creditor Claims in Bankruptcy: Secured, Unsecured & Priority to find out more.

Companies Prohibited from Filing for Chapter 13 Bankruptcy

A company is not permitted to file for Chapter 13 bankruptcy under its own name. Rather, when firms want assistance with debt restructuring, they are directed toward Chapter 11 bankruptcy. There is one exception, though: Even though a sole proprietor cannot file under the name of the company, their personal and corporate debts are included in their bankruptcy case because they are their own. Thus, Chapter 13 can be a useful tool for restructuring a business owned by a single owner.

However, even if you are a business owner, you are still eligible to file for Chapter 13 bankruptcy as an individual. Debts pertaining to your business that you personally own will be included in your Chapter 13 bankruptcy filing. However, the company will still be responsible for the debt. (Again, if you’re a sole owner, the outcome is different—the bankruptcy will handle both your personal and business debt liability.)

How to File for Bankruptcy Under Chapter 13

In the official bankruptcy filing, you will reveal every detail of your financial situation, including your income and expenses, assets, creditors, and past transactions. Once you file your paperwork and any other required materials (such a filing fee and verification that you finished credit counseling), the case will begin. Unless the court grants you an extension, you have fourteen days to file your Chapter 13 repayment plan.

 

If you fulfill all of the requirements of the Chapter 13 plan, filing for Chapter 13 bankruptcy might be a terrific method to get out of debt. Chapter 13 bankruptcy is an option available to those who qualify. It can be used to prevent humiliating collection actions, keep a house from going into foreclosure, and more.

However, not everyone is able to pay Chapter 13 fees, and even those whose income above Chapter 7 levels are not always eligible for Chapter 13. If you’re thinking about submitting a Chapter 13 petition, you should find out:

Below, we outline the steps involved in determining if you qualify for Chapter 13 bankruptcy as well as what to anticipate during the filing process. Find out if filing under Chapter 13 is a better option for first-time bankruptcy filers than Chapter 7.

How Chapter 13 Bankruptcy Is Filed?

In contrast to Chapter 7, Chapter 13 requires you to pay back some or all of your debt to creditors over a period of three to five years. Most people file for Chapter 13 only if they are ineligible for Chapter 7, preferring the faster and much less expensive Chapter 7 procedure.

That isn’t always the case, though. There are important advantages in Chapter 13 that are not present in Chapter 7. These are a handful.

Repay Debt and Maintain a Home or Vehicle

Chapter 7 won’t help if you’re in foreclosure and don’t want to lose your house. Nonetheless, the Chapter 13 payment plan allows you to make up missed payments, allowing you to keep a home, vehicle, or other “secured” asset that would otherwise be returned to the lender.

Save Anything You Would Lose in Chapter 7

The same amount of property can be protected by bankruptcy exemptions for each person filing for bankruptcy. Nevertheless, you are not required to relinquish any assets in order to apply for Chapter 13 bankruptcy.

You retain your exempt property under Chapter 7, and the trustee for Chapter 7 sells any “nonexempt property” that isn’t protected by an exemption. The Chapter 13 trustee, on the other hand, does not deal in real estate.

However, this does not imply that you own more property than a person who files under Chapter 7. Instead, you use your repayment plan to cover the nonexempt property’s worth. See Chapter 13 for further information on what happens to property.

Save Money on Automobiles, Houses, Vacation Rentals, and More

You could be eligible to make a smaller payment in Chapter 13 if the value of your home, automobile, or other property decreased dramatically and you are left with a debt greater than its actual value. Whether the property is a house, car, rental, or some other kind of property will determine whether a “lien strip” or “cramdown” is available.

In Chapter 13, do you pay back everything?

Seldom does a filer’s Chapter 13 plan completely pay off debt. It is among the advantages of Chapter 13. Until you find out more about what’s needed for a Chapter 13 payment, though, you won’t know if you’ll be able to pay off everything you owe.

Continue reading. We’ll walk you through each step.

How to Determine Payments for the Chapter 13 Plan

Because calculating a Chapter 13 plan payment can be a bit tricky, we’ve omitted a few procedures to make things easier. Nevertheless, using this method will provide you with a fairly accurate idea of how much you would have to pay in a standard five-year plan.

Establish the duration of the plan.

Total the amount of debts you have to pay off.
The debt amount is divided by 60 months.
Assess your income to see if it covers the necessary amount in addition to your monthly expenses.
Check to see if you have any “disposable income” left over for obligations that you are not required to pay off in full.
Verify if you pass the “best interest of creditors” standard.
When you’re ready to start your calculations, the stages will be easier for you to follow with the explanations that follow. Make sure you consult with a Chapter 13 attorney to receive a precise payment estimate.

Is a Chapter 13 Payment Plan Duration?

Your income level will determine whether your payment plan is three or five years long. To determine the duration of your plan, follow these steps:

Multiply by two the total gross income that you and your contributing family members generated throughout the previous six months.
On the U.S. Trustee Program website (click “Means Testing Information” to get the state median income charts), compare the figure to the median income for your state.
Your plan must last five years if your amount is more than the median annual income for your household size in your state. If your income is below the median, you can suggest a three-year plan.

How Much of Your Chapter 13 Debt Must You Pay Back?

Plans under Chapter 13 have particular payment guidelines. While some creditors are required to receive 100% of your debt, others are only required to receive a considerably lesser portion or nothing at all. The breakdowns are provided here.

Accounts Payable in Full

All of these payments will be made in full via your plan. To find the monthly payment amount for this category, add the amounts and divide by 60.

Claims made administratively

The trustee’s 10% commission on average, your legal fees, and any professional fees authorized by the court.
payments owed on your house, vehicle, and other past-due secured debts (if you wish to keep the property)

 

Debts That Are Paid 100% to 0%
The remainder of your debts are classified as “general unsecured” debt and are assigned a “pro rata” or percentage of your disposable income. The amount left over after covering your necessary living expenses and the aforementioned debts is your disposable income.

The “best interest of creditors” criterion, which mandates that you pay priority and general unsecured creditors at least as much as you would have under Chapter 7, may, however, require you to make more payments. Stated differently, the same amount as the worth of your nonexempt property, or the assets that a bankruptcy exemption cannot shield.

Priority and General Unsecured Debts:

Unsecured debt, as contrast to secured debt, isn’t backed by property that a creditor may seize if you don’t make your bill payments. Priority unsecured debt has a higher payment priority position in bankruptcy, including recently incurred tax debt and domestic support obligations.

At the bottom of the bankruptcy payment ladder is general unsecured debt. Typical instances consist of:

Significant debts from department stores and credit cards, medical expenses, personal loans (including payday loans), electricity bills, and club memberships.
Except for student loan amounts, the bankruptcy court erases any sums left over at the conclusion of Chapter 13 and you are not required to pay off all general unsecured debts.

What Is Chapter 13’s Typical Monthly Payment?

Although there is no average Chapter 13 payment, you can be sure that it will be much more than you had anticipated when you initially started looking into the possibility of Chapter 13. If you’ve performed an approximate calculation using the previous procedures, you may have arrived at that conclusion already.

Chapter 13 filers utilizing a five-year plan will pay one of two amounts; the majority of filers will fall into the first category, despite the fact that there is no average monthly payment.

Your Monthly Disposable Income

Every cent of your monthly salary will go toward covering your costs and filing for bankruptcy. Your “disposable income,” or the amount left over after mandatory payments and permitted expenses, is owed to your creditors.

It’s a challenging budget to stick to for five years, but when it works, the rewards are great. Not only may filing for Chapter 13 cease creditor harassment, but most filers emerge from the process debt-free, with the exception of student loan and mortgage payments.

All of Your Debts aside from home loans and student loans

Sometimes, people with large disposable incomes pay off all of their debt, including school loans, mortgages, and other long-term commitments, in a move described as a “100% plan.” Because you’ll probably have money left over after paying your monthly bills and Chapter 13 payment, your budget won’t be as strict. How come someone would submit a 100% plan? to protect themselves from collection efforts while gradually repaying the amount.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

(480) 744-7711
INITIAL CONSULTATION

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business Bankruptcy, Chapter 7 Bankruptcy, Creditor Representation, Chapter 5 Claims, Chapter 13 Bankruptcy, Business Restructuring, Chapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

bankruptcy, bankruptcy attorneys, Chapter 11, Chapter 12 Bankruptcy, Chapter 13 Bankruptcy, Chapter 5 claims, Chapter 7, Chapter 7 Bankruptcy
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Regular Post
Written by Canterbury Law Group

Can You File Bankruptcy For Medical Bills

You can file for bankruptcy to discharge or manage medical bills. Medical debt is considered unsecured debt, meaning it’s not tied to any specific asset, and it can be included in bankruptcy filings. There are two primary types of bankruptcy that individuals often file in the U.S. to manage medical debt:

1. Chapter 7 Bankruptcy (Liquidation Bankruptcy):

  • How it works: In a Chapter 7 bankruptcy, non-exempt assets may be sold to pay off creditors, but most people who file do not have significant assets that can be liquidated. After the process, most unsecured debts, including medical bills, can be discharged (eliminated).
  • Impact on medical bills: Medical bills are typically fully discharged in Chapter 7, meaning you are no longer legally obligated to pay them.
  • Eligibility: To qualify for Chapter 7, you must pass a “means test,” which examines your income, expenses, and ability to pay back debts. If your income is below the median for your state, you likely qualify.

2. Chapter 13 Bankruptcy (Reorganization Bankruptcy):

  • How it works: In a Chapter 13 bankruptcy, you create a repayment plan to pay back some or all of your debts over a three to five-year period. Unsecured debts like medical bills are included in the repayment plan, but after the repayment period, any remaining unsecured debts may be discharged.
  • Impact on medical bills: Medical bills are part of the debts that can be reorganized and partially repaid under this plan. Any remaining amount after the plan period may be discharged.
  • Eligibility: Chapter 13 is an option for individuals who do not qualify for Chapter 7 or who want to keep certain assets (such as a home or car) that they might lose under Chapter 7. It also requires a regular income.

Considerations:

  • Credit score: Filing for bankruptcy will negatively impact your credit score for several years (up to 10 years for Chapter 7 and 7 years for Chapter 13).
  • Consult an attorney: Bankruptcy laws can be complex, and consulting with a bankruptcy attorney can help you determine which type of bankruptcy is best for your situation.

Overall, bankruptcy is a legal way to manage overwhelming medical debt and can provide relief for individuals facing financial hardship due to medical expenses.

Can You Negotiate Medical Bills?

Yes, you can file for bankruptcy to discharge or manage medical bills. Medical debt is considered unsecured debt, meaning it’s not tied to any specific asset, and it can be included in bankruptcy filings. There are two primary types of bankruptcy that individuals often file in the U.S. to manage medical debt:

1. Chapter 7 Bankruptcy (Liquidation Bankruptcy):

  • How it works: In a Chapter 7 bankruptcy, non-exempt assets may be sold to pay off creditors, but most people who file do not have significant assets that can be liquidated. After the process, most unsecured debts, including medical bills, can be discharged (eliminated).
  • Impact on medical bills: Medical bills are typically fully discharged in Chapter 7, meaning you are no longer legally obligated to pay them.
  • Eligibility: To qualify for Chapter 7, you must pass a “means test,” which examines your income, expenses, and ability to pay back debts. If your income is below the median for your state, you likely qualify.

2. Chapter 13 Bankruptcy (Reorganization Bankruptcy):

  • How it works: In a Chapter 13 bankruptcy, you create a repayment plan to pay back some or all of your debts over a three to five-year period. Unsecured debts like medical bills are included in the repayment plan, but after the repayment period, any remaining unsecured debts may be discharged.
  • Impact on medical bills: Medical bills are part of the debts that can be reorganized and partially repaid under this plan. Any remaining amount after the plan period may be discharged.
  • Eligibility: Chapter 13 is an option for individuals who do not qualify for Chapter 7 or who want to keep certain assets (such as a home or car) that they might lose under Chapter 7. It also requires a regular income.

Considerations:

  • Credit score: Filing for bankruptcy will negatively impact your credit score for several years (up to 10 years for Chapter 7 and 7 years for Chapter 13).
  • Consult an attorney: Bankruptcy laws can be complex, and consulting with a bankruptcy attorney can help you determine which type of bankruptcy is best for your situation.

Overall, bankruptcy is a legal way to manage overwhelming medical debt and can provide relief for individuals facing financial hardship due to medical expenses.

bankruptcy, bankruptcy attorneys, Chapter 11, Chapter 11 Bankruptcy, Chapter 13, Chapter 13 Bankruptcy, Chapter 5, Chapter 5 claims, Chapter 7, Chapter 7 Bankruptcy, Filing Bankruptcy in Scottsdale, personal bankruptcy attorneys, Scottsdale Attorneys, Scottsdale Legal Help
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Regular Post
Written by Canterbury Law Group

What Qualifies You For Chapter 13?

Many debtors are curious about what is required to file for Chapter 13 bankruptcy and how to do so. A person filing for Chapter 13 bankruptcy can keep all of their assets, including automobiles and homes, if they are able to pay into a plan for three to five years and have adequate income to repay all of their creditors.

But not everyone qualifies for Chapter 13. Find out if you qualify for Chapter 13 bankruptcy and the requirements for filing.

(480) 744-7711
INITIAL CONSULTATION

What Makes You Eligible for Bankruptcy Under Chapter 13?

The advantage of this chapter is that you can use a three- to five-year repayment plan to pay off part, but typically not all, of your debts. However, you must complete the official bankruptcy papers and provide proof of the following before the court “confirms” (approves) your plan:

Current with tax returns while staying within debt amount restrictions
Employed, have sufficient income to meet the required monthly payment, and are an individual rather than a business (however a sole proprietor’s business’s finances are included in the bankruptcy).
You Must File Your Income Taxes Current.
You need to provide evidence that you submitted your state and federal income tax returns for the four tax years prior to the date of your bankruptcy filing in order to file for Chapter 13. The court may postpone the proceedings if you need more time to stay up to date on your files, but you shouldn’t rely on this. Ultimately, though, your Chapter 13 case will be dismissed if you fail to submit your returns or transcripts of the returns for those four years.

Find out why the court can reject your case.

You Need to Make Enough Money for Your Own Needs

In order to be eligible for Chapter 13, you must demonstrate to the bankruptcy court that you will have sufficient income to satisfy your repayment obligations after deducting certain permitted expenses and mandatory payments on secured debts (like a mortgage or auto loan). If you don’t pay off some debts completely, the judge won’t approve your plan and let you move on.

The following sources of revenue can be used to finance a Chapter 13 plan:

Regular pay or salary money from self-employment commissions from sales or other work earnings from seasonal labor pension payments
Social Security income
Perks for workers’ compensation or disability
Public benefits (welfare payments) such as unemployment compensation, strike benefits, and the like
Alimony or child support You get income from selling property, especially if it’s a component of your main business property, as well as royalties and rents.

It’s not always the case that your married income has to be “yours.” A non-working spouse may file tax returns on their own and deduct their working spouse’s income. A spouse who is jobless may file jointly with a spouse who is employed. Find out more about the repayment plan for Chapter 13 bankruptcy.

Why File for Bankruptcy Under Chapter 13?

Because Chapter 7 bankruptcy does not force the filer to repay creditors, it is the preferred option for many people. However, certain debtors are ineligible. Some, on the other hand, decide that filing under Chapter 13 bankruptcy is a preferable alternative because it offers possibilities not available under Chapter 7.

The following is a list of typical justifications for filing a Chapter 13 case:

A debtor is not qualified to get a Chapter 7 discharge and eliminate qualifying debt if their income surpasses the limit allowed by the Chapter 7 means test.
If a homeowner falls behind on their mortgage payment, they can pay the arrearages over a period of three to five years and still maintain their home (this also applies to past-due auto payments).
If a debtor completes a repayment plan and pays off late support, taxes, or other nondischargeable obligation, they can avoid collection actions like wage garnishments.
Nonexempt property that would otherwise be liquidated in a Chapter 7 bankruptcy can be retained by the debtor; however, the nonexempt component must be paid for over the course of the three- to five-year repayment plan.

Further Chapter 13 Conditions

A substantial income is a prerequisite for Chapter 13 eligibility, but there are additional requirements as well.

You Cannot Have Too Many Debts

If you have more debt than a particular amount, including secured and unsecured, you will not be eligible for Chapter 13 bankruptcy. Begin by familiarizing yourself with the most recent Chapter 13 debt restrictions and methods for meeting them. The U.S. Courts Chapter 13 Bankruptcy Basics webpage allows you to confirm the amounts.

A debt is considered secured if, in the event that you fail to make payments to the creditor, you could lose the particular property you pledged as collateral. The most typical types of secured debts are auto and home loans. However, if a creditor—like the IRS—has placed a lien (notice of claim) against your property, a debt may also be secured in this way.

A creditor does not have the authority to seize specific property in response to an unsecured obligation. Credit card debt, medical and legal costs, past-due utility bills, and department store charges are among the many types of unsecured debts. Read Types of Creditor Claims in Bankruptcy: Secured, Unsecured & Priority to find out more.

Companies Prohibited from Filing for Chapter 13 Bankruptcy

A company is not permitted to file for Chapter 13 bankruptcy under its own name. Rather, when firms want assistance with debt restructuring, they are directed toward Chapter 11 bankruptcy. There is one exception, though: Even though a sole proprietor cannot file under the name of the company, their personal and corporate debts are included in their bankruptcy case because they are their own. Thus, Chapter 13 can be a useful tool for restructuring a business owned by a single owner.

However, even if you are a business owner, you are still eligible to file for Chapter 13 bankruptcy as an individual. Debts pertaining to your business that you personally own will be included in your Chapter 13 bankruptcy filing. However, the company will still be responsible for the debt. (Again, if you’re a sole owner, the outcome is different—the bankruptcy will handle both your personal and business debt liability.)

How to File for Bankruptcy Under Chapter 13

In the official bankruptcy filing, you will reveal every detail of your financial situation, including your income and expenses, assets, creditors, and past transactions. Once you file your paperwork and any other required materials (such a filing fee and verification that you finished credit counseling), the case will begin. Unless the court grants you an extension, you have fourteen days to file your Chapter 13 repayment plan.

 

If you fulfill all of the requirements of the Chapter 13 plan, filing for Chapter 13 bankruptcy might be a terrific method to get out of debt. Chapter 13 bankruptcy is an option available to those who qualify. It can be used to prevent humiliating collection actions, keep a house from going into foreclosure, and more.

However, not everyone is able to pay Chapter 13 fees, and even those whose income above Chapter 7 levels are not always eligible for Chapter 13. If you’re thinking about submitting a Chapter 13 petition, you should find out:

Below, we outline the steps involved in determining if you qualify for Chapter 13 bankruptcy as well as what to anticipate during the filing process. Find out if filing under Chapter 13 is a better option for first-time bankruptcy filers than Chapter 7.

How Chapter 13 Bankruptcy Is Filed?

In contrast to Chapter 7, Chapter 13 requires you to pay back some or all of your debt to creditors over a period of three to five years. Most people file for Chapter 13 only if they are ineligible for Chapter 7, preferring the faster and much less expensive Chapter 7 procedure.

That isn’t always the case, though. There are important advantages in Chapter 13 that are not present in Chapter 7. These are a handful.

Repay Debt and Maintain a Home or Vehicle

Chapter 7 won’t help if you’re in foreclosure and don’t want to lose your house. Nonetheless, the Chapter 13 payment plan allows you to make up missed payments, allowing you to keep a home, vehicle, or other “secured” asset that would otherwise be returned to the lender.

Save Anything You Would Lose in Chapter 7

The same amount of property can be protected by bankruptcy exemptions for each person filing for bankruptcy. Nevertheless, you are not required to relinquish any assets in order to apply for Chapter 13 bankruptcy.

You retain your exempt property under Chapter 7, and the trustee for Chapter 7 sells any “nonexempt property” that isn’t protected by an exemption. The Chapter 13 trustee, on the other hand, does not deal in real estate.

However, this does not imply that you own more property than a person who files under Chapter 7. Instead, you use your repayment plan to cover the nonexempt property’s worth. See Chapter 13 for further information on what happens to property.

Save Money on Automobiles, Houses, Vacation Rentals, and More

You could be eligible to make a smaller payment in Chapter 13 if the value of your home, automobile, or other property decreased dramatically and you are left with a debt greater than its actual value. Whether the property is a house, car, rental, or some other kind of property will determine whether a “lien strip” or “cramdown” is available.

In Chapter 13, do you pay back everything?

Seldom does a filer’s Chapter 13 plan completely pay off debt. It is among the advantages of Chapter 13. Until you find out more about what’s needed for a Chapter 13 payment, though, you won’t know if you’ll be able to pay off everything you owe.

Continue reading. We’ll walk you through each step.

How to Determine Payments for the Chapter 13 Plan

Because calculating a Chapter 13 plan payment can be a bit tricky, we’ve omitted a few procedures to make things easier. Nevertheless, using this method will provide you with a fairly accurate idea of how much you would have to pay in a standard five-year plan.

Establish the duration of the plan.

Total the amount of debts you have to pay off.
The debt amount is divided by 60 months.
Assess your income to see if it covers the necessary amount in addition to your monthly expenses.
Check to see if you have any “disposable income” left over for obligations that you are not required to pay off in full.
Verify if you pass the “best interest of creditors” standard.
When you’re ready to start your calculations, the stages will be easier for you to follow with the explanations that follow. Make sure you consult with a Chapter 13 attorney to receive a precise payment estimate.

Is a Chapter 13 Payment Plan Duration?

Your income level will determine whether your payment plan is three or five years long. To determine the duration of your plan, follow these steps:

Multiply by two the total gross income that you and your contributing family members generated throughout the previous six months.
On the U.S. Trustee Program website (click “Means Testing Information” to get the state median income charts), compare the figure to the median income for your state.
Your plan must last five years if your amount is more than the median annual income for your household size in your state. If your income is below the median, you can suggest a three-year plan.

How Much of Your Chapter 13 Debt Must You Pay Back?

Plans under Chapter 13 have particular payment guidelines. While some creditors are required to receive 100% of your debt, others are only required to receive a considerably lesser portion or nothing at all. The breakdowns are provided here.

Accounts Payable in Full

All of these payments will be made in full via your plan. To find the monthly payment amount for this category, add the amounts and divide by 60.

Claims made administratively

The trustee’s 10% commission on average, your legal fees, and any professional fees authorized by the court.
payments owed on your house, vehicle, and other past-due secured debts (if you wish to keep the property)

 

Debts That Are Paid 100% to 0%
The remainder of your debts are classified as “general unsecured” debt and are assigned a “pro rata” or percentage of your disposable income. The amount left over after covering your necessary living expenses and the aforementioned debts is your disposable income.

The “best interest of creditors” criterion, which mandates that you pay priority and general unsecured creditors at least as much as you would have under Chapter 7, may, however, require you to make more payments. Stated differently, the same amount as the worth of your nonexempt property, or the assets that a bankruptcy exemption cannot shield.

Priority and General Unsecured Debts:

Unsecured debt, as contrast to secured debt, isn’t backed by property that a creditor may seize if you don’t make your bill payments. Priority unsecured debt has a higher payment priority position in bankruptcy, including recently incurred tax debt and domestic support obligations.

At the bottom of the bankruptcy payment ladder is general unsecured debt. Typical instances consist of:

Significant debts from department stores and credit cards, medical expenses, personal loans (including payday loans), electricity bills, and club memberships.
Except for student loan amounts, the bankruptcy court erases any sums left over at the conclusion of Chapter 13 and you are not required to pay off all general unsecured debts.

What Is Chapter 13’s Typical Monthly Payment?

Although there is no average Chapter 13 payment, you can be sure that it will be much more than you had anticipated when you initially started looking into the possibility of Chapter 13. If you’ve performed an approximate calculation using the previous procedures, you may have arrived at that conclusion already.

Chapter 13 filers utilizing a five-year plan will pay one of two amounts; the majority of filers will fall into the first category, despite the fact that there is no average monthly payment.

Your Monthly Disposable Income

Every cent of your monthly salary will go toward covering your costs and filing for bankruptcy. Your “disposable income,” or the amount left over after mandatory payments and permitted expenses, is owed to your creditors.

It’s a challenging budget to stick to for five years, but when it works, the rewards are great. Not only may filing for Chapter 13 cease creditor harassment, but most filers emerge from the process debt-free, with the exception of student loan and mortgage payments.

All of Your Debts aside from home loans and student loans

Sometimes, people with large disposable incomes pay off all of their debt, including school loans, mortgages, and other long-term commitments, in a move described as a “100% plan.” Because you’ll probably have money left over after paying your monthly bills and Chapter 13 payment, your budget won’t be as strict. How come someone would submit a 100% plan? to protect themselves from collection efforts while gradually repaying the amount.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

(480) 744-7711
INITIAL CONSULTATION

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business Bankruptcy, Chapter 7 Bankruptcy, Creditor Representation, Chapter 5 Claims, Chapter 13 Bankruptcy, Business Restructuring, Chapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

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Chapter 7 Bankruptcy—Who Can’t File

Chapter 7 bankruptcy, often referred to as “liquidation bankruptcy,” allows individuals and businesses to discharge most of their unsecured debts, providing a fresh financial start. However, not everyone is eligible to file for Chapter 7 bankruptcy. Here’s a detailed overview of who cannot file for Chapter 7 bankruptcy:

1. High Income Individuals (Means Test)

  • Means Test Requirement: Individuals whose income exceeds a certain threshold based on the state median income may not qualify for Chapter 7 bankruptcy. The means test evaluates income, expenses, and family size to determine if the individual can afford to repay some debts.
  • Excessive Income: If your average monthly income over the six months preceding the bankruptcy filing is higher than the median income for your household size in your state, you may not qualify for Chapter 7.

2. Prior Bankruptcy Filers

  • Recent Filings: If you have filed for Chapter 7 bankruptcy in the past eight years, you are ineligible to file again for Chapter 7.
  • Chapter 13 Bankruptcy: If you have filed for Chapter 13 bankruptcy and received a discharge in the last six years, you cannot file for Chapter 7 unless you have successfully completed the Chapter 13 plan and obtained a discharge.

3. Fraudulent Filers

  • Fraudulent Behavior: Individuals who have committed bankruptcy fraud, such as providing false information or failing to disclose assets, may be denied the ability to file for Chapter 7.
  • Concealment of Assets: If you have hidden assets or income with the intent to defraud creditors or the bankruptcy court, your filing may be dismissed.

4. Undisclosed Debts

  • Failure to Disclose All Debts: If you do not list all your debts when filing for bankruptcy, the court may deny your request for Chapter 7 protection. Full disclosure of all debts is mandatory.

5. Recent Debt Incurrence

  • Recent Credit Card Purchases: If you incurred significant debt shortly before filing for bankruptcy, especially on luxury items or cash advances, the court may scrutinize your case. This can result in a denial of discharge for those debts, if deemed fraudulent.

6. Current Bankruptcy Cases

  • If you are currently in a bankruptcy case (either Chapter 7 or Chapter 13) that has not been discharged, you cannot file for another Chapter 7 bankruptcy until the first case is resolved.

7. Certain Legal Entities

  • Business Entities: Generally, Chapter 7 is designed for individuals and certain types of partnerships. Corporations and limited liability companies (LLCs) file for bankruptcy under different chapters, such as Chapter 11 or Chapter 13.

8. Certain Taxes and Debts

  • Non-Dischargeable Debts: Even if you qualify for Chapter 7, some debts cannot be discharged in bankruptcy. This includes certain taxes, student loans, child support, and alimony.

Conclusion

While Chapter 7 bankruptcy can provide a fresh start for many individuals, several restrictions exist regarding eligibility. Individuals with high incomes, prior bankruptcy filings, fraudulent behavior, or certain legal obligations may find themselves unable to file for Chapter 7. Consulting with a bankruptcy attorney is advisable to navigate the complexities of bankruptcy laws and assess your eligibility based on your unique financial situation.

Carefully consider the advantages and disadvantages given above before discussing your bankruptcy with an attorney.  For more email the firm at [email protected] or call 480-744-7711.

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What Happens After Filing Chapter 7

What to Expect after Chapter 7 Discharge

What happens after you file Chapter 7. Read on to learn more!

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Your Chapter 7 case typically takes four months to complete and finishes once you receive your final decision or bankruptcy discharge letter. Learn more about the duration of Chapter 7 bankruptcy.

Once you receive your “debt discharge,” or the order that forgives qualifying debt, most filers find that their Chapter 7 case is over in a day or two. After filing for bankruptcy, your case will usually be concluded in four months or less. However, if the trustee needs to sell any “nonexempt assets” or if there is litigation that needs to be resolved, the Chapter 7 trustee may leave your case open for a much longer period of time. After the trustee resolves any unresolved matters, liquidates any assets, distributes the proceeds, and files a report with the court, your Chapter 7 bankruptcy case finally comes to a close.

What Takes Place in Each Case of Chapter 7 Bankruptcy

The same Chapter 7 procedures must be followed by all parties in order to be eligible for a debt discharge. After the creditor’s meeting—the one appearance required of all Chapter 7 filers—you will have to wait for 60 days before the court issues your discharge order. Prior to being granted the discharge, you will, at the very least, perform the following:

Complete the bankruptcy papers by providing complete information about your assets, obligations, income, and expenses.
Submit a fee waiver or pay a filing fee.
Provide 521 financial records to the trustee in bankruptcy (the person in charge of overseeing the case).
Participate in the creditors’ 341 meeting, effectively refute any objections to the discharge, and finish the credit and debt counseling courses (you must finish the first one before submitting your application).
However, the matter is not concluded by the bankruptcy court’s discharge letter or ruling.

A discharge letter or order: What Is It?

The order the bankruptcy court mails at the end of the case is referred to as a “discharge letter” or “discharge order”. The ruling formally “discharges” or “eliminates” qualified debt, which includes personal loans, medical debt, and balances on credit cards and utility bills.

Sixty days following the date of the first 341 meeting of creditors, if everything proceeds as planned, the court will order a Chapter 7 discharge. The order may be postponed for a number of reasons, including the trustee’s need for more time to look into the matter or an attempt by a creditor to block the discharge. However, these issues typically don’t surface unless there is litigation or a failing firm.

When a plan is completed, the court in a Chapter 13 case orders the discharge. Within a few weeks, the trustee often turns in the last set of documents necessary to initiate the discharge order.

The debtor is released from qualifying debt liability upon the discharge. Additionally, it forbids creditors from making an effort to recoup the dismissed debt. A copy of the discharge order or discharge letter is mailed by the court to all parties concerned, including the debtor, creditors, and legal counsel.

It will list the categories of debt that are frequently discharged in bankruptcy rather than the specific obligations that have been discharged. It is advisable to have a copy of the letter on available. Give the creditor the case number and the order’s discharge date over the phone.

When Will Your Bankruptcy Case End Under Chapter 7?

The case will stay open if the court needs to take additional action, and you will need to work with the trustee until the bankruptcy court settles all issues.

What Takes Place If I Own Property That I Cannot Keep?

It is your responsibility to give any non-exempt assets to the trustee handling your case. It is the trustee’s responsibility to collect the nonexempt assets, sell them, and give the money raised to your creditors who have submitted legitimate claims documentation. Locating the property and liquidating it may take the trustee months, or in extreme circumstances, a year, if your case is intricate. Cases over a year old are strongly discouraged by the bankruptcy court.

You may be asked to assist the trustee in gathering the property. The worst-case scenario, which would include losing your nonexempt assets and nearly all of the benefits of the bankruptcy discharge, could occur if you don’t cooperate.

What Takes Place When a Lawsuit Is Filed?

Unless the trustee or a creditor contests your right to dismiss all of your debts, a bankruptcy case usually has no bearing on your general discharge. In spite of this, your case may still be pending after you’ve been discharged. In that case, you have an obligation to assist.

The following are some bankruptcy lawsuit categories that could cause a delay in the conclusion of your case:

Figuring out if a debt is dischargeable. The court will continue to hear your case until it makes a determination about the dischargeability of any debt that you or one of your creditors files a lawsuit asking it to decide
Litigation by the trustee to collect assets. A trustee may occasionally need to sue a third party in order to get access to your nonexempt assets.
For instance. Let’s say a month before to filing, you sold your cousin’s car for half of its original price. The entire worth of the car would belong to the trustee. If your cousin refused to give up the car or pay the full amount owed, the trustee would sue.

For instance. Let’s say you settled your Chapter 7 case with your preferred creditor after making a sizable payment to them. To get the money back, the trustee could sue.

The Final Report of the Trustee

Upon the liquidation of all assets and payment of all claims, the trustee will submit a Final Report to the court. The court will issue a final judgment and the court clerk will close the matter unless any party objects to the final report.

Reopening a Chapter 7 Bankruptcy Case That Was Closed

Even the judge’s ultimate ruling in the case won’t mean that it is over. Reopening the case is sometimes required. Usually, this occurs when an asset that ought to have been included in the case during its active period is discovered by the trustee, a creditor, or the debtor. If the case is reopened, you will still be required to assist the trustee, but the court will not be able to reverse your release more than a year after the case was closed.

The source is located at https://www.nolo.com/legal-encyclopedia/when-does-my-bankruptcy-case-end.html.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

(480) 744-7711
INITIAL CONSULTATION

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business Bankruptcy, Chapter 7 Bankruptcy, Creditor Representation, Chapter 5 Claims, Chapter 13 Bankruptcy, Business Restructuring, Chapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

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Bankruptcy Exemptions
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Federal and State Bankruptcy Exemptions

What are Bankruptcy Exemptions?

Bankruptcy exemptions are laws that allow debtors to protect certain property from being taken by creditors during the bankruptcy process. These exemptions help ensure that individuals can maintain a basic standard of living while resolving their debts. The specific exemptions available can vary by state, but they generally fall into two categories: federal exemptions and state exemptions.

Federal Bankruptcy Exemptions

The federal bankruptcy code provides a set of exemptions that apply in every state. Debtors can choose to use these exemptions instead of state exemptions if the state allows it. Some common federal exemptions include:

  1. Homestead Exemption: Protects a certain amount of equity in the debtor’s primary residence. In 2024, the federal homestead exemption is $27,900.
  2. Motor Vehicle Exemption: Protects up to $4,450 in equity in one motor vehicle.
  3. Personal Property Exemptions: Protects specific amounts of equity in personal property, such as:
    • Household goods and furnishings (up to $700 per item, with a total limit of $14,875).
    • Jewelry (up to $1,875).
    • Tools of the trade (up to $2,800).
  4. Wildcard Exemption: Allows debtors to protect any property up to a certain amount. In 2024, the federal wildcard exemption is $1,475, plus up to $13,950 of any unused portion of the homestead exemption.
  5. Retirement Accounts: Protects most tax-exempt retirement accounts, such as 401(k)s and IRAs, up to a certain limit (IRAs are capped at $1,512,350).
  6. Public Benefits: Protects Social Security, unemployment, and disability benefits.
  7. Life Insurance: Protects life insurance policies with a loan value up to $14,875.

State Bankruptcy Exemptions

Each state has its own set of bankruptcy exemptions, and some states allow debtors to choose between the state and federal exemptions. States that do not allow the use of federal exemptions require debtors to use state exemptions. Some examples of state exemptions include:

  1. Homestead Exemption: Varies widely by state. Some states, like Florida and Texas, offer unlimited homestead exemptions, while others have specific dollar limits.
  2. Motor Vehicle Exemption: Amounts vary by state. For example, California allows up to $3,325 in equity in one motor vehicle.
  3. Personal Property Exemptions: Protect specific types and amounts of personal property, such as:
    • Clothing, furniture, and appliances.
    • Tools of the trade.
  4. Wages: Many states protect a portion of the debtor’s wages from garnishment.
  5. Retirement Accounts: Most states offer exemptions for retirement accounts similar to federal protections.
  6. Public Benefits: Protects various public benefits, such as Social Security, unemployment, and disability benefits.
  7. Wildcard Exemptions: Some states offer a wildcard exemption that can be applied to any property.

Choosing Exemptions

Debtors must choose either the federal or state exemptions, depending on their state of residence. In some cases, the choice of exemptions can significantly impact the outcome of the bankruptcy case. Consulting with a bankruptcy attorney can help debtors understand which set of exemptions is more beneficial for their situation.

Arizona Exemptions

At Canterbury Law Group, our Scottsdale attorneys are renowned bankruptcy technicians. We represent clients through the entire bankruptcy process and, although all cases are unique, the end goal of bankruptcy is always a new beginning and fresh financial start.

We help clients determine eligible exemptions for their bankruptcy case. Here are some of the most common exemptions available under Arizona law (meaning that they will emerge from bankruptcy):

  • Alimony and Child Support – Alimony and child support, up to the amount needed for support. 33-1126.
  • Bank Deposit – A debtor may exempt $300 in a single bank account. Ariz. Rev. Stat. Ann. § 33–1126(8).
  • Homestead or Residential Property – Under Arizona law, debtors may exempt up to $150,000 (per debtor or married couple) of their home or other real property covered by the homestead exemption. Ariz. Rev. Stat. Ann. §§ 33–1101, 33–1103 and 33–1104.
  • Insurance Benefits – Life insurance benefits that are payable or received by a surviving spouse or child, up to $20,000.
  • Claims for the destruction of, or damage to, exempt property – Cash surrender value of life insurance policies, subject to length of ownership requirements and other exceptions.
  • Motor Vehicles – A debtor may exempt up to $6,000 in one or more motor vehicles. An elderly or disabled debtor, or an elderly or disabled spouse or dependent of the debtor, may exempt up to $12,000.
  • Pension and Retirement Benefits – Benefits from various employee pension systems are exempt. Ariz. Rev. Stat. Ann. §§ 33–1126 and 38–792.
  • Personal Property – A debtor may exempt the following personal property:
    • up to $6,000 in household furniture and appliances not covered by other exemptions
    • up to $1,000 total in bible, bicycle, sewing machine, typewriter, computer, burial plot, rifle, pistol or shotgun
    • up to $500 in clothing
    • up to $400 in musical instruments
    • up to $800 in animals
    • up to $2,000 in engagement and wedding rings
    • up to $250 in books
    • up to $150 in watch
    • wrongful death awards
    • prepaid rent or security deposit to $2,000 or 1.5 times your rent, whichever is less, in lieu of using homestead exemption.
    • all teaching materials for youth, and
    • certain professionally prescribed health aids.
  • Tools of the Trade – A debtor may exempt up to $5,000 in trade implements, which includes farming tools if the debtor’s primary income is from farming. All arms and uniforms that a debtor is legally required to keep are exempt. Library and teaching aids of a teacher.
  • Unemployment Compensation – Unemployment compensation is exempt as long it is not commingled with other funds and except for the enforcement of child support orders. Ariz. Rev. Stat. Ann. § 23–783.
  • Wages – A debtor may exempt the lesser of the following wages, per week:
    • 25% of his or her disposable earnings, or
    • earnings in excess of 30 times the federal minimum wage
    • Workers’ Compensation – A debtor may exempt up to $6,000 in one or more motor vehicles. An elderly or disabled debtor, or an elderly or disabled spouse or dependent of the debtor, may exempt up to $12,000.

Our legal team is ready to represent you in your Scottsdale business or personal bankruptcy case. Call us today to schedule your consultation. Our track record speaks for itself! 480-744-7711.

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Chapter 7 Bankruptcy Income Limits

Financial difficulties can put your resilience, patience, and even sanity to the test. All of those exams can be completed by filing for Chapter 7 bankruptcy, but filing will need passing one more test. We refer to it as the means test.

Continue reading to find out more. Please don’t hesitate to contact our knowledgeable and polite staff if you need assistance with the means test or any other aspect of your bankruptcy case.

Statistics on Individual Bankruptcies

It’s important to comprehend why the means test may be worthwhile to go through even in cases where Chapter 13 bankruptcy does not call for it before delving too far into it.

Seven out of ten individuals filing for personal bankruptcy select Chapter 7 liquidation over Chapter 13 restructuring, according to national statistics. During the one-year period ending March 31, 2012, 396,175 Chapter 13 filings were made as opposed to 958,757 Chapter 7 filings.

The explanations are rather obvious: Three to six months may pass between a Chapter 7 discharge and a five-year reorganization plan in almost all Chapter 13 cases. In addition, because to state and federal exemptions, Chapter 7 filers frequently do not lose any property.

Furthermore, you might not be able to file for Chapter 13 bankruptcy, in which case the Chapter 7 means test would need to be your backup plan. This is because Chapter 13 does not have an income ceiling; but, you might not be able to petition under Chapter 13 if your income is insufficient to cover your creditors’ reasonable debts.

Chapter 7: Maximum Income

Most likely, you’ll want to file for Chapter 7 bankruptcy unless you’re seeking to keep your property from going through foreclosure. But what happens if you have a pretty high household income? Since the bankruptcy code was redesigned in 2005, filing for Chapter 7 bankruptcy requires that an applicant’s income level be met. You can file for Chapter 7 bankruptcy protection if your income is less than the state median income for the size of your household. In Illinois, for instance, the median income for a family of four was $107,226 in July 2021.

The Means Test: What Is It?

It’s crucial to realize, meanwhile, that a household income above the state median does not always imply that a Chapter 7 is unaffordable. Instead, you can use the “means test,” a complex formula that can only be understood with the assistance of a knowledgeable bankruptcy attorney.

With the 2005 amendments to the federal bankruptcy code, the means test was instituted with the goal of guaranteeing that debtors who have the means to make at least a partial payment to creditors file under Chapter 13. The intricate mathematical formula’s final objective is to ascertain if the debtor will have enough money left over after expenses are covered to reimburse creditors.

Your Salary and the Means Examination

It should be clear to you by now that the most important consideration in the Chapter 7 means test is your income. It’s not an easy calculation, though. It is not possible to determine if you have “passed” the means test by just entering in your pay. Numerous other factors are involved as well, such as the duration of your computations, your household size, deductions, and more.

Timing of Income Calculations

The means test has been criticized in the past for being too complicated and having a unique calculation method. For instance, the computation does not use the debtor’s current income as the average. The debtor must instead calculate the average of their income over the previous six months in order to pass the means test.

This six-month period may occasionally become more difficult due to changes in your work status or job. For example, if you were unemployed for the past six months after working at a high-paying employment for five of those months, an expert attorney can assist you in accounting for that change in your means test results.

Revenue Sources

You must include sources of income other than your base wage when calculating your income for the means test. The following are some instances of revenue sources that your calculations must take into account:

Your pay
Any money from a side gig or freelance work
Income for retirement
Child support and alimony
Income from unemployment
Costs to Factor Into Your Estimate
Furthermore, the debtor’s current spending do not correspond with the amounts computed for the test. Expenses are not determined by the debtor’s actual expenses, but rather by both local and national norms. For instance, there is a nationwide figure to use, which is updated on a regular basis, for the spending categories of food, housekeeping supplies, clothes and services, personal care items and services, and miscellaneous. The only spending categories where a debtor can incorporate their actual payments in the means test computation are mortgage and auto payments.

Income and Household Size in the Means Test

Your household size will play a major role in whether or not you pass the means test. This is so because the means test income ceiling is based on the number of persons living in your household. That income ceiling will rise in proportion to the number of people living in your home.

For instance, in Missouri, a single-person household’s 2021 Chapter 7 income ceiling is $50,521. However, the cap is $89,418 if there are four people living in your home. Remember that you have passed the means test if your income is below the income limit and you are thus immediately qualified to file under Chapter 7.

It should be pretty easy to calculate the revenue limit if your household size situation is basic. To find out how the court where you will file for bankruptcy determines household size, you may need to speak with your bankruptcy attorney or trustee in more complicated scenarios involving non-resident dependents and related matters.

How to Find Out If You Qualify for Chapter 7 Bankruptcy

The amount left over, if any, after deducting expenses from income determines whether a debtor has sufficient disposable income to be eligible for a Chapter 13 filing. The assumption is that the debtor can afford to pay creditors and should file under Chapter 13 if the projected disposable income over a five-year period is more than $10,000.

A debtor is likely to be eligible for Chapter 7 bankruptcy if their disposable income for the five-year period is less than $6,000. You guessed it: an additional computation is triggered if a debtor’s disposable income is between $6,000 and $10,000.

This formula looks at the ratio of disposable income to the total amount of debt that is unsecured. The debtor will probably not be allowed to file for Chapter 7 if their estimated disposable income over a five-year period exceeds twenty-five percent of their entire amount of unsecured debt. The debtor is likely to pass the means test and be permitted to proceed with a Chapter 7 filing if the percentage is less than 25 percent.

If I Pass the Means Test, What Happens?

Good news! You can proceed with filing for Chapter 7 bankruptcy if you pass the means test. That does not mean that the work is done, though. While it usually takes less time than Chapter 13, the Chapter 7 procedure is more involved and can take many months. A reputable Chapter 7 attorney can assist you in keeping things going forward.

If I Don’t Pass the Means Test, What Happens?

Don’t give up if you don’t pass the means test. It’s possible that you can still file for Chapter 13 bankruptcy. Additionally, you can recalculate the means test results to check if you pass in the event that your income or financial circumstances alter. You can “retake” the means test as much as you’d like because it’s just a calculation that you do. Additionally, you can file for bankruptcy under Chapter 7 after passing it.

Chapter 7 Means Test: Required Forms

The forms used in Chapter 7 are test functions, which are worksheets that assist you in performing proper calculations. These are the forms that you must complete and submit with your bankruptcy.

The forms you’ll need are as follows:

Form 122A-1. The “Chapter 7 Statement of Your Current Monthly Income” is the name of this form. All this paper does is assist you in determining whether your income is less than the state median income. You have passed the means test if it is less than the median. This implies that you are not eligible to use the other two forms on this list.
Form 122A-2. If your salary exceeds the state median, you must complete out this form, which is called the “Chapter 7 Means Test Calculation.” This form will be used to calculate your take-home pay after deducting permitted costs. This will assist in determining if Chapter 7 or Chapter 13 may be appropriate for you.
Form 122A-1Supp. Ascertaining your genuine exemption from the means test is made easier with the use of the “Statement of Exemption from Presumption of Abuse Under § 707(b)(2).” For example, the means test may not be required of certain military personnel.

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Can I File for Bankruptcy Without My Spouse?

You can file for bankruptcy without your spouse. This process is known as “individual bankruptcy,” and it allows one spouse to seek debt relief without involving the other. Here are some key points to consider:

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Types of Bankruptcy

  1. Chapter 7 Bankruptcy:
    • Individual Filing: If you file for Chapter 7 bankruptcy individually, only your debts and assets will be considered. Your spouse’s income and assets are generally not included, but their income may be considered to determine your eligibility based on the means test.
    • Means Test: The means test considers household income, so your spouse’s income might be included to determine if you qualify for Chapter 7.
  2. Chapter 13 Bankruptcy:
    • Individual Filing: In a Chapter 13 bankruptcy, your repayment plan will be based on your individual income and debts. However, the household income, including your spouse’s income, may be considered to determine your repayment ability.
    • Repayment Plan: Your spouse is not directly involved in the repayment plan, but their income may affect the overall household budget and repayment amount.

Considerations

  1. Joint Debts:
    • If you and your spouse have joint debts, your bankruptcy filing will impact those debts. For example, if you discharge a joint debt in your bankruptcy, your spouse will still be responsible for repaying it unless they also file for bankruptcy.
  2. Property and Assets:
    • Community Property States: In community property states, most property acquired during the marriage is considered jointly owned, regardless of whose name is on the title. Filing for bankruptcy in these states may involve both spouses’ property.
    • Non-Community Property States: In non-community property states, the bankruptcy will generally only affect the filing spouse’s assets.
  3. Impact on Spouse’s Credit:
    • Filing for bankruptcy individually will not directly impact your spouse’s credit score. However, if you have joint accounts or debts, your bankruptcy can affect their credit indirectly.
  4. Income Considerations:
    • Even if your spouse is not filing, their income may be considered to determine your eligibility for bankruptcy and the terms of your repayment plan. This is especially relevant in Chapter 13 filings.

Benefits of Individual Filing

  • Separate Finances: If your spouse has a good credit score and separate finances, filing individually can help protect their credit.
  • Targeted Debt Relief: Allows you to address your debts specifically without involving your spouse.

When to Consider Joint Filing

  • Significant Joint Debts: If you and your spouse have significant joint debts, filing together may provide more comprehensive debt relief.
  • Combined Financial Issues: If both spouses are facing financial difficulties, joint filing can streamline the process and reduce overall legal fees.

Legal Advice

  • Consult an Attorney: It’s important to consult with a bankruptcy attorney to understand the implications of filing individually versus jointly. An attorney can help you navigate the complexities of the process and determine the best course of action based on your specific situation.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

(480) 744-7711
INITIAL CONSULTATION

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business Bankruptcy, Chapter 7 Bankruptcy, Creditor Representation, Chapter 5 Claims, Chapter 13 Bankruptcy, Business Restructuring, Chapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

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Low Cost Bankruptcy

Low Cost Bankruptcy

Low Cost Bankruptcy

Finding low-cost bankruptcy options can be challenging, but there are some resources and strategies that individuals facing financial difficulties can consider. Here are some potential avenues for low-cost bankruptcy:

1. Legal Aid Organizations

  1. Legal Aid Societies: Many communities have legal aid societies or organizations that provide free or low-cost legal assistance to low-income individuals. These organizations may offer bankruptcy services or referrals to affordable legal representation.

2. Pro Bono Services

  1. Pro Bono Attorneys: Some attorneys offer pro bono (free) or reduced-fee services to clients who cannot afford traditional legal representation. Contacting local bar associations or legal aid organizations may help connect individuals with attorneys willing to take on bankruptcy cases pro bono or at reduced rates.

3. Bankruptcy Clinics and Workshops

  1. Bankruptcy Clinics: Some law schools and nonprofit organizations host bankruptcy clinics or workshops where individuals can receive basic legal advice and assistance with filing bankruptcy forms. These clinics are often staffed by law students, attorneys, or volunteers and may offer services at reduced rates or for free.

4. Self-Help Resources

  1. Bankruptcy Forms: The United States Courts website provides free access to bankruptcy forms and instructions, allowing individuals to file for bankruptcy pro se (without an attorney). While filing pro se can be challenging, it may be a cost-effective option for individuals with straightforward bankruptcy cases and limited financial resources.

5. Fee Waivers

  1. Court Filing Fees: Some individuals may qualify for a waiver of the court filing fees associated with bankruptcy if they meet certain income criteria. Contacting the bankruptcy court or consulting with a legal aid organization can help determine eligibility for fee waivers.

6. Payment Plans

  1. Attorney Payment Plans: Some attorneys may offer payment plans or flexible payment options to clients who cannot afford to pay their entire legal fee upfront. Individuals should inquire about payment arrangements when consulting with potential bankruptcy attorneys.

7. Consider Chapter 7 Bankruptcy

  1. Chapter 7 vs. Chapter 13: Chapter 7 bankruptcy typically involves fewer legal fees and administrative costs compared to Chapter 13 bankruptcy, as it does not require the debtor to create and adhere to a repayment plan. Depending on the individual’s financial situation, Chapter 7 bankruptcy may be a more affordable option.

Conclusion

While bankruptcy can be a complex legal process, individuals facing financial hardship may be able to find low-cost or free resources to help them navigate the bankruptcy process. Exploring options such as legal aid organizations, pro bono services, bankruptcy clinics, and self-help resources can provide individuals with the assistance they need to seek relief from overwhelming debt without incurring significant legal fees. It’s essential to research available resources and options carefully and to seek guidance from qualified professionals when considering bankruptcy.

bankruptcy, bankruptcy attorneys, Chapter 13, Chapter 13 Bankruptcy, Chapter 7, Chapter 7 Bankruptcy, Scottsdale Attorneys, Scottsdale Legal Help
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Written by Canterbury Law Group

Bankruptcy Costs 2024

How Much Does It Cost To File For Bankruptcy

The average cost of bankruptcy is between $2,000 and $6,000 and more for 2024. Read on to learn more.

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The cost of filing for bankruptcy can vary depending on several factors, including the type of bankruptcy, the complexity of the case, and the fees charged by attorneys and bankruptcy courts. As of 2024, here’s a general overview of the costs associated with filing for bankruptcy in the United States:

Chapter 7 Bankruptcy

  1. Attorney Fees:
    • Attorney fees for Chapter 7 bankruptcy can range from a few hundred to several thousand dollars, depending on the complexity of the case and the attorney’s experience.
    • Some attorneys offer flat-rate fees for Chapter 7 bankruptcy, while others charge hourly rates. It’s essential to inquire about fees during the initial consultation.
  2. Court Filing Fees:
    • As of 2024, the filing fee for Chapter 7 bankruptcy is $338. This fee is paid directly to the bankruptcy court when the petition is filed.
    • In some cases, debtors may qualify for a waiver of the filing fee if they meet certain income criteria.
  3. Credit Counseling and Debtor Education Courses:
    • Before filing for bankruptcy, debtors are required to complete credit counseling from an approved agency. The cost of this course can vary but is typically around $50 to $100.
    • Additionally, debtors must complete a debtor education course after filing for bankruptcy, which can also cost around $50 to $100.

Chapter 13 Bankruptcy

  1. Attorney Fees:
    • Attorney fees for Chapter 13 bankruptcy are typically higher than for Chapter 7 due to the additional complexity of creating and administering a repayment plan.
    • Attorney fees for Chapter 13 bankruptcy may range from $2,500 to $6,000 or more, depending on the circumstances of the case and the attorney’s fee structure.
  2. Court Filing Fees:
    • As of 2024, the filing fee for Chapter 13 bankruptcy is $313. This fee is paid directly to the bankruptcy court when the petition is filed.
    • Similar to Chapter 7, debtors may qualify for a waiver of the filing fee in Chapter 13 bankruptcy under certain circumstances.
  3. Credit Counseling and Debtor Education Courses:
    • The costs associated with credit counseling and debtor education courses are the same for Chapter 13 bankruptcy as they are for Chapter 7.

Additional Costs

  1. Credit Report Fees:
    • Debtors may incur fees for obtaining credit reports, which are necessary for completing bankruptcy paperwork and evaluating the debtor’s financial situation.
  2. Miscellaneous Costs:
    • Depending on the circumstances of the case, debtors may incur additional costs for services such as obtaining copies of financial documents, notary fees, postage, and transportation.

The total cost of filing for bankruptcy can vary significantly depending on individual circumstances and the jurisdiction in which the case is filed. It’s essential for debtors to obtain accurate information about fees and costs from their attorney and to budget accordingly for the bankruptcy process. Additionally, some individuals may qualify for fee waivers or payment plans to help alleviate the financial burden of filing for bankruptcy.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

(480) 744-7711
INITIAL CONSULTATION

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business Bankruptcy, Chapter 7 Bankruptcy, Creditor Representation, Chapter 5 Claims, Chapter 13 Bankruptcy, Business Restructuring, Chapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

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