Do you want to file for bankruptcy but aren’t sure if you are eligible? Check out this guide for everything you need to know about bankruptcy requirements.
In 2020, 544,463 bankruptcy cases were filed, a 29.7% decrease from the previous year. Bankruptcy can be a tool to help solve some financial hardships. If you wonder, “Can I file for bankruptcy?” the answer may not be completely straightforward because of the process involved.
There are several requirements to file bankruptcy, which vary depending on your situation. Let’s look at bankruptcy requirements for the most common types of bankruptcy. Then you can determine if filing for bankruptcy is an option for you.
Types of Bankruptcy to Consider
There are two common types of individual bankruptcies to consider. The two types are Chapter 7 bankruptcy and Chapter 13 bankruptcy. These two types each have their own advantages and disadvantages.
The type you choose will determine if you qualify for bankruptcy. The requirements are somewhat complicated and also location dependent. Because of this, you may want to discuss your options with an attorney to ensure you are choosing the best option for your situation.
Chapter 7 bankruptcy is focused on eliminating unsecured debts within several months. This can include credit card bills, personal or business loans, or medical debt. Chapter 7 bankruptcy is usually the best option for individuals with few assets or low income and high debts.
Chapter 7 bankruptcy is not available to everyone. Certain requirements must be met to be eligible. For those who don’t qualify for Chapter 7 bankruptcy, Chapter 13 bankruptcy may be an option.
In Chapter 13 bankruptcy, you repay your debts over a three-to-five-year period. This type of bankruptcy may be a good option if your income is too high to qualify for Chapter 7.
Chapter 7 Bankruptcy Requirements
To file for Chapter 7 bankruptcy, your average monthly income over the past six months must be lower than the median income for the same-sized household in your state. If it is not, you must pass a means test.
A means test is used to determine if your disposable income is high enough for you to make partial payments to your unsecured creditors. If you fail the means test, you may be able to qualify for Chapter 13 bankruptcy instead.
You cannot have filed for Chapter 7 bankruptcy within the past eight years or Chapter 13 bankruptcy within the past six years. Finally, you must not be attempting to defraud your creditors. A judge may throw out your case if they find out you are.
Chapter 13 Bankruptcy Requirements
If you are considering Chapter 13 bankruptcy, there are a few differences in the requirements. Most of these differences involve income and your general economic status since the goal is to pay back some of the debt.
Your income must be sufficient to make the monthly payments that are outlined in your bankruptcy plan. Chapter 13 bankruptcy involves paying off debts, so this ensures these debts will be paid.
You will also need to provide proof that you filed your state and federal income tax returns for the previous four years.
You need to meet certain debt limits. Your unsecured debts may not be over $419,275, and your secured debts may not be more than $1,257,850. These limits change every three years but are currently in effect until April 2022.
Common Bankruptcy Requirements
For both Chapter 7 and 13, you will need to complete a credit counseling course to file for bankruptcy. The course must be from an approved credit counseling agency. They are short, and you can take them online or over the phone.
You have six months to file after completing the course. You’ll need to include your certificate of completion in your application. In Nebraska, you will need to take a second course about budgeting and finances as well.
If you have previously tried to file for either Chapter 7 or 13 bankruptcy and your case was dismissed, you must wait at least 181 days before filing again.
While completing your application, you will need to fill out several forms about your financial history. You will need to gather information, including your most recent pay stubs, financial statements, tax returns, and documents related to your debts.
Is Filing for Bankruptcy Right for You?
Filing for bankruptcy can help you reduce or eliminate debts. It can also help you get your finances back in order.
However, it is not something you should take lightly. Bankruptcy has a large negative impact on credit and should be viewed as a last resort. It has strong financial and credit consequences that last for years.
Both Chapter 7 and 13 bankruptcy will show up on your credit reports. After you finish the bankruptcy process, the reports will indicate that your debts have been discharged through the filing.
However, potential lenders will probably consider it, which may impact how difficult it is to get new credit. Chapter 7 bankruptcy shows up on your credit report for 10 years, while Chapter 13 stays on for seven years. Over time, it does affect your credit score.
Some lenders may consider a Chapter 13 bankruptcy less negative than Chapter 7. This is because, in a Chapter 13 case, you repay your debts, either all or a portion of them, over time.
Get Started with Your Bankruptcy Case
If you are interested in pursuing a bankruptcy case, make sure you meet the bankruptcy requirements for the type of bankruptcy that is best for you. Consulting an attorney can make this process and these decisions easier.
Call 402-415-2525 to schedule a consultation with Husker Law in Omaha today and get your financial life back in order.
