The term “bankruptcy” often carries a lot of emotional baggage with it. If somebody is considering bankruptcy, they likely have more than enough stress in their life already without the additional negativity society has placed on bankruptcy. This societal pressure can leave one feeling as though bankruptcy is an admission of failure, a signal of inability to manage one’s own finances, or a disappointment to family and friends. However, nothing could be further from the truth. In fact, the Bankruptcy Code was specifically designed to give debtors a “fresh start” and a means at a do-over to their financial situation. The societal stigma associated with bankruptcy is most often perpetuated by credit card companies and debt collection agencies who would have you believe you’re a bad person and you deserve to go to “debtor jail” if you are facing financial difficulty. But as most people across the country are experiencing in these unprecedented times, financial difficulties can happen to anyone and are often due to circumstances that are beyond our control. So, if you are considering bankruptcy, here are a few factors to help determine whether filing a chapter 7 bankruptcy would be a smart option for you:
You are an individual
An individual is defined as a single human being, as opposed to a corporation, partnership, group, society, etc. However, you do not need to be single in the marital sense to qualify as an individual. Married couples may petition jointly for bankruptcy, as well as single individuals. This may be a good idea particularly if the debts owed are in the names of both spouses. Additionally, even if married, it is possible to file bankruptcy on behalf of one of the spouses without involving the other. This may be the most prudent option if the debts are primarily owed by only one spouse and the other has assets that are separately owned and not property of the community.
Your debts are dischargeable in nature
The Bankruptcy Code lists 19 types of debt that are non-dischargeable, or, in other words, will still continue to be owed even after bankruptcy. Examples of debts that are dischargeable in bankruptcy include credit card debt, medical bills, accounts with collection agencies, personal loans, utility bills, tax debts past a certain number of years, and past due rent owed under a lease agreement. Among the most common types of debt that are not dischargeable include debts resulting from fraud or embezzlement, spousal or child support obligations, personal injury judgments resulting from drunk driving, and student loans.
You have little or no disposable income
If you file a chapter 7 with a certain amount of disposable income, a “presumption of abuse” arises and the case is either dismissed or converted into a chapter 13. In order to file a chapter 7, you can qualify in either one of two ways. First, if your monthly income is below the average for the state you qualify for a chapter 7. Although this number depends on the size of the household, for a single one person household the median monthly income in California is $5,030.00. So, if your monthly income is lower than this, you qualify to file a chapter 7. However, even if your monthly income is greater than this, you may still qualify if you pass the “means test,” which calculates your monthly income for 6 months prior to filing bankruptcy and your allowable monthly expenses to determine the amount of disposable income. Since this formula can very greatly it must be calculated on a case by case basis, but it is a second means of qualifying for a chapter 7 bankruptcy.
You do not own a home or have other substantial assets
A common misconception is that you cannot file bankruptcy if you have equity in a home or other assets. However, the bankruptcy code allows you to “exempt” certain assets, thereby protecting them during the bankruptcy process and allowing you to keep them. The homestead exemptions allows a single individual to exempt up to $75,000.00 in home equity, $100,000.00 if the filer is the head of household or has another family member living in the home, or $175,000.00 if the filer is 65 years of age or older or disabled. A motor vehicle, such as a car, truck, or motorcycle may be exempted up to $3,325.00. Other personal property may be exempt, such as household items, jewelry or heirlooms, and health aids.
You have not filed ch. 7 in the last 8 years, or a ch. 13 in last 6 years
Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, there are time limits on how frequent successive bankruptcy petitions can be filed. If you have previously filed a chapter 7 the soonest you can file another petition is 8 years. If you have previously filed a chapter 13 the soonest you can file a chapter 7 is 6 years. It is important to note that these time frames are calculated from the date of the last filing to the date of the next filing, and not from the date the discharge was actually entered.