Bankruptcy is a legal process that stops collection activity and potentially discharges some of a filer’s unsecured debts. Both individuals and businesses struggling financially can potentially file for bankruptcy.
Many people who might benefit from bankruptcy inaccurately assume that they would not qualify to file. Understanding who meets the criteria for bankruptcy can help you regain control over your debt.
You have to have unsecured debts
The most obvious qualification for bankruptcy is financial pressure caused by unsecured debts. If you don’t have credit card debt, medical debt or other unsecured debts, bankruptcy may not be the right solution to your financial issues.
While some kinds of bankruptcy can make it easier for you to renegotiate a mortgage or a car loan, you don’t necessarily have to file for bankruptcy to take that step. Bankruptcy largely benefits those with unsecured debts that they cannot repay. Many people only file when creditors initiate lawsuits or attempt to repossess collateral property because of budget issues.
You have to meet certain income standards
Most people filing for bankruptcy as an individual will file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. To qualify for Chapter 7 proceedings, an individual has to perform a means test that involves comparing their adjusted income to the state median for their household size. Chapter 13 bankruptcy is accessible even to high earners, although a debt limit applies to Chapter 13 filings.
Your debts have to meet certain criteria
If you want to file a Chapter 13 bankruptcy, you can have no more than $419,275 in unsecured debt and $1,257,850 in secured that, at least until April of 2022. If you have too much debt, you won’t qualify for Chapter 13 proceedings.
You can’t have a recent bankruptcy filing on record
Typically, those seeking bankruptcy protection have to wait multiple years between their last filing or discharge and a new bankruptcy. The kind of bankruptcy you initially filed and the type you intend to file this time will impact how long you have to wait. The longest potential waiting period occurs if someone previously filed a Chapter 7 bankruptcy wants to file again. They will have to wait eight years in order to file.
Most Americans will qualify for either Chapter 13 or Chapter 7 bankruptcy. Factors ranging from income and employment to personal assets will determine which form of bankruptcy is the best choice. Learning about bankruptcy can be the first step toward regaining control over your finances.