We’re going to need to go through a few steps to see if you qualify for Chapter 7 bankruptcy.
For someone with the right tools and base of knowledge, it’s easy once you know the answers to these three basic questions.
That doesn’t mean it’s simple.
Chapter 7 bankruptcy is deceptively easy – like the magic trick where the woman gets sawed in half, the mechanics aren’t readily apparent.
Here’s the 3-step process I use with my clients.
Look At Income And Expenses
Do you make enough money to repay your bills without bankruptcy? After all, Chapter 7 should be a last resort, not the first one you pick. If you can afford to repay your bills without filing for Chapter 7, so much the better.
Some of the folks who talk with me can repay their debts. I give them my thoughts and recommendations, then send them on their way.
For others, however, paying their debts is a non-starter. That’s when I roll up my sleeves and dig into the next line of inquiry.
Let’s Talk About Property
To be clear, property doesn’t mean your home or car – it means your stuff. All of your stuff, in fact. The house and other real estate is considered “real property” and the other things you own are collectively called “personal property.”
Your property has value. Some things have a lot of value (that rare coin collection, for example) and other things have little if any value (the sneakers you’ve been wearing for a year). But it’s all stuff.
When you file for bankruptcy – Chapter 7 or Chapter 13 – you are required to tell the court about all of your property regardless of the value. Some of that property can’t be taken from you, and other things you may have to give up in a Chapter 7 bankruptcy.
Thought bankruptcy is a federal system, what you get to keep and what you lose varies from place to place. In a Chapter 7 filed in Los Angeles, for example, you get to keep things that you may lose if you were to file a case in Brooklyn.
That’s why I’ll go through my clients’ property, try to get a sense of value, and see what would be lost in a Chapter 7. Doing so means that we won’t have any surprises, and can make an informed decision about the right move.
Now We Measure Your Income
You’re going to need to dig into your household income over the course of the past six months so we can figure out where you stand. If your income is above the median for a household of your size in the state in which you live, we’re going to need to do a deeper level of calculations.
This is called means testing, and I tell my clients it’s as complex as a corporate tax return for a multinational company. The only difference is that the tax return makes some sense, whereas the means testing process is like running through molasses – it isn’t easy, it isn’t quick, and it’s not much fun.
If you come out below median, we’re in far better shape as far as your ability to qualify for Chapter 7. Coming out over the line doesn’t necessarily mean you won’t quality, but it does vary on a number of other factors.
Now You Can Make The Decision
If you qualify based on your income and expenses, it’s up to you as to whether you’re going to need to give up some property to get into a Chapter 7. I’ll help you weigh the choice so we can come up with a game plan, but ultimately the choice is yours.
Of course, the first step is figuring out if you qualify. Working together, we’ll get those answers so you can move forward.
Image credit: hey mr glen
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