One of the most prevalent questions we get is, "How do I know if I qualify to file a Chapter 7 Bankruptcy!" People have often heard bits and pieces of information and are unsure of their rights and are worried about factors that would prohibit them from filing a Chapter 7 Bankruptcy.
Here are the main factors that would disqualify you from filing a Chapter 7 Bankruptcy in Michigan:
1. You Are Above The Income Limit
What is the income limit for filing Chapter 7? If someone’s wages or income is below the median income level, the presumption is after paying all of their monthly living expenses, they cannot afford to pay additional money toward their debts and therefore qualify to file a Chapter 7 bankruptcy. If the total household income is over the median income, then further steps are needed to determine eligibility for a Chapter 7 bankruptcy.
One of the first steps in the Chapter 7 bankruptcy process is to take a Means Test. This test takes into account median income as well as a calculation of disposable income. If you pass the means test, you are clear to file a Chapter 7 bankruptcy. If the test is failed, you could investigate filing a Chapter 13 debt consolidation plan instead.
2. You Have Too Much Home Equity Or Other Assets
Chapter 7 bankruptcy allows certain dollar amount exemptions to protect real property ($23,675 of equity for each filer under the Federal Exemptions), retirement savings and assets. There are some nuances to these asset exemptions (age, martial status, state versus federal exemptions, etc.) that would need to be evaluated based on your unique circumstances. If there was any concern about protecting your assets if you filed Chapter 7, you could file a Chapter 13 debt consolidation plan instead to ensure all assets remain protected. Filing a Chapter 13 reorganization plan does not mean that you will have to pay back all of your debt. Most Chapter 13 Plans only pay a portion of the overall general unsecured debt.
3. You Have Excessive Luxury Budget Expenses
Because Chapter 7 is a full debt elimination program, an attorney needs to evaluate each person’s circumstance to ensure they can protect your property and assets. A common question is, if I file Chapter 7, can I keep my:
- Motor home;
- Premium or luxury car;
- Recently purchased travel.
The answer really depends upon your circumstances and what is considered “reasonable”. Your attorney’s goal should be to only file “no asset” Chapter 7 cases and to protect every last penny to avoid a court-appointed Trustee liquidating assets. Please disclose ALL assets, even if you don’t think they are valuable. This will help create the best strategy to help you resolve your debt.
4. You Filled For Chapter 7 Bankruptcy Within 8 Years
You are eligible to file a Chapter 7 Bankruptcy every eight years. The time period is based off of the filing date of your previous case. If it has been under that eight year threshold, you still may be eligible to receive a discharge under a Chapter 13 bankruptcy. Here is the breakdown:
- Year 1 – 4 after filing Chapter 7: You are immediately eligible to file a Chapter 13 bankruptcy to stop creditor actions (i.e. home foreclosure, car repossession, etc) and gain legal protection. You can still consolidate and defer unsecured debts. You are not eligible for a Discharge after the completion of the case (whatever debts that were not paid under the plan are still owed and have to be paid).
- Four years after your Chapter 7 filing: By filing a Chapter 13 reorganization plan after four years from the date of the Chapter 7 Bankruptcy filing, you are eligible to discharge(eliminate) debts in addition to gaining protection from your creditors. Most clients only pay back a percentage of what they owe to unsecured creditors and the balance of what is not paid back is legally eliminated or discharged at the completion of the program.
If you are not sure on the exact filing date of your previous Chapter 7 filing, we can help you by looking the information up on the court website at the time of the free initial consultation.
5. You Are Delinquent On Real Property (house, car, etc)
If you are behind on a home or vehicle payment and cannot bring the payments current prior to filing a Chapter 7 Bankruptcy, we will typically recommend filing a Chapter 13 over a Chapter 7 to ensure that you do not lose your property. If you are behind on other things, such as income taxes or property taxes, we may also want to evaluate if a Chapter 13 Bankruptcy would be a more comprehensive tool to help resolve your debt.
The Difference between Chapter 7 vs Chapter 13 – Making a Decision
As you can see, there are many factors to consider as you formulate a plan to resolve your debts. While Chapter 7 and Chapter 13 Bankruptcies offer different benefits, they share the common of theme of debt resolution with the benefit of court protection from your creditors.
Call us today for a free consultation! We offer same day appointments and even same day legal protection if you need it. We have 6 convenient office locations: Flint, Ann Arbor, Southfield, Dearborn, Downtown Detroit and Warren. We offer evening and weekend appointments to work around your schedule. Call us today at 866-261-8282.