Federal bankruptcy law is when a debtor is unable to meet financial obligations, obtain a fresh financial start or organize any stable financial status. Bankruptcy law allows debtors to
With only certain limited exceptions, an individual (alone or together as a married couple) or a business (a sole proprietorship, partnership, or corporation) may file for bankruptcy protection. While debtors filing for bankruptcy protection are unable to pay their debts as they become due, or their liabilities are greater than their assets; insolvency is not a requirement for a voluntary bankruptcy filing.
Chapter 7 is the most frequently filed bankruptcy case because it eliminates debt. However, Chapter 7 is not available for everyone because it has criteria that determine whether a client can or cannot file a case under Chapter 7. The income level of the client is determined by family size when compared to the median income for a family of that size in New York State. A Means test is designed to determine if a client above the median income for their household size in the State of New York qualifies to file a case based upon their necessary expenses. The test analyzes a client’s income, deductions and necessary expenses within the last 6 months prior to filing the bankruptcy case. To qualify for Chapter 7 it is necessary to have negative disposable income under the means test. If a client has positive disposable income they cannot file for Chapter 7 bankruptcy but they may still qualify for Chapter 13 bankruptcy and pay a small percentage of their debt over a 5 year plan.
A Chapter 13 bankruptcy is more open to persons filing and does not have an official income or an unofficial asset value limitation. Chapter 13, allows an individual with positive disposable income to obtain bankruptcy relief under a 5 year Chapter 13 plan where the debt or a portion of the debt is paid without additional interest or charges by the creditor. However, Chapter 13 has a limitation on the amount of secured debt, and unsecured debt which cannot exceed certain amounts. Individuals affected by the debt limits of Chapter 13 case, can file in Chapter 11, which accommodates larger debt loads for larger cases.
Deciding which chapter of the bankruptcy code to use requires careful strategy with an attorney who specializes in bankruptcy.