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Do I Qualify for Bankruptcy?

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Christopher Morgan
Christopher Morgan is a principal attorney in Morgan & Morgan, Attorneys at Law, P.C. He focuses on consumer bankruptcy, disability matters, and family law. Click here to learn more.

Congress substantially revised the Bankruptcy Code in 2005. These amendments made it more difficult, but certainly not impossible, for distressed debtors to get the fresh start which the law guarantees.

These changes altered general and corporate bankruptcy qualifications, but they did not fundamentally alter this federal debt relief program. The Automatic Stay in Section 362 of the Bankruptcy Code still halts repossession, wage garnishment, foreclosure, and other creditor adverse actions. Furthermore, debtors hold on to most of their property, such as a house, and see most of their unsecured debts, such as medical bills, vanish.

Because of these additional complexities, you need a Georgia bankruptcy lawyer to guide you through this legal process. Even an unintentional mistake could have serious consequences. Moreover, only a lawyer can unlock some advanced bankruptcy features that greatly benefit your family.

Chapter 7 Eligibility Requirements

This form of bankruptcy eliminates most of the aforementioned unsecured debts in as little as six months. So, in the words of former Supreme Court Justice James McReynolds, these debtors quickly get an opportunity “to start afresh free from the obligations and responsibilities consequent upon business misfortunes.”

Written Rules

The means test, which all Chapter 7 debtors must satisfy, was perhaps the most controversial element of the 2005 bankruptcy reforms. Credit card companies pushed hard for this provision, and their lobbying efforts worked. As soon as this requirement took effect in October 2005, the bankruptcy filing rate dropped from historic highs to almost nothing.

However, most people still automatically qualify for Chapter 7 under the means test. To qualify under this provision, their annual household income must be below the relevant state average figure. As of November 1, 2020, that amount is $91,161 for a family of four in Georgia. The government usually adjusts this figure one or two times a year.

If your income is substantially above the threshold, you probably do not need to file a Chapter 7. A bankruptcy lawyer can assist you with some other options, such as a Chapter 13 or non-bankruptcy debt reduction negotiations.

If your income is slightly higher, you probably still qualify for Chapter 7, based on your actual monthly expenses. This avenue is just a bit more time consuming.

Furthermore, all bankruptcy debtors must be a resident of the state in which they are filing. All debtors must also provide proof of identity, which is usually a Social Security card and a current, government-issued photo ID. If these documents are unavailable, a Georgia bankruptcy lawyer can probably make alternative arrangements.

Finally, all debtors must complete a pre-filing credit counselling class and a post-filing budgeting class. These inexpensive and brief classes are normally available online.

Unwritten Rules

The written rules are the same for all Chapter 7 debtors in all parts of the country. The unwritten rules vary in different jurisdictions. But, they are normally the same.

Income/expense balance is a good example. All Chapter 7 filers must list their monthly income and expense figures on Schedules I and J. Since this form of bankruptcy is an extreme form of debt relief, if you are not marginally in the red every month, the trustee (person who oversees a case for a judge) might question your need to file Chapter 7. 

However, if you are too far in the red, the trustee might suspect bankruptcy fraud. So, there is a fine line here.

Chapter 13 Qualifications

Most people file Chapter 13 because they are behind on home mortgage loan payments. Technically, lenders can begin foreclosure proceedings if one payment is one day late.

Written Rules

The identification and course rules discussed above apply in Chapter 13 as well. Personal identification and income verification, which usually means providing copies of tax returns, are old requirements. The counselling requirement is a 2005 addition.

The means test is inapplicable. However, there is a Chapter 13 debt ceiling. As of January 2021, these debtors cannot owe more than $1.4 million in secured debt or $400,000 in unsecured debt. So, if you recently purchased a very large house and/or have unpaid cancer treatment bills, the debt ceiling might be a problem.

Unwritten Rules

Before we get to the unwritten rules, a brief word about hoe Chapter 13 works. These debtors must pay a monthly debt consolidation payment which takes care of secured debt arrears and other allowed claims, such as some priority unsecured debt arrearage. Generally, the protected repayment plan lasts sixty months.

Debtors must demonstrate an ability to make this monthly payment. So, they must be in the black every month, according to the income/expense balance sheet. If that’s not the case, the trustee probably will not approve the repayment plan, which means the judge probably won’t approve it either.

If you fail to qualify for Chapter 13 under the written or unwritten rules, do not fret. Other options are available.

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