If you are considering filing for bankruptcy to alleviate your debt, it’s important to check to see if you qualify. There are different qualification criteria for chapter 7 and chapter 13 bankruptcy proceedings. It is not uncommon for individuals to qualify for one type and not the other.
You can file for chapter 7 bankruptcy with any amount of debt. However, you must undergo a means test to determine your income. If you have a high income, the government may not grant you bankruptcy approval because it may believe you have the ability to repay your debt.
The means test is conducted through the completion of several application forms and verifies that you will not be suspected of abuse when filing for bankruptcy. These forms are listed below:
- Form 122A-1, Statement of Your Current Monthly Income
- Form 122A-1Supp, Statement of Exemption from Presumption of Abuse
- Form 122A-2, Means Test Calculation
Chapter 13 bankruptcy, on the other hand, is subject to debt limits. To qualify, you cannot have more than $394,725 in unsecured debt. Unsecured debt is any debt not secured by collateral (like a lien or other asset) in exchange for the loan. Examples of unsecured debt include credit cards, utility bills and medical bills. If you fail to pay these debts, there is nothing that the creditor can seize or take to get reimbursed.
You must also have no more than $1,184,200 in secured debt, which is credit that was given to you in exchange for collateral. Secured debt includes things like home loans and car loans. If you do not make your payments for these debts, for example, your mortgage lender or auto loan company has the right to seize your home or your car.
Keep in mind that these debt amounts change periodically to reflect differences in the cost of living.
There are a few shared requirements between chapter 7 and chapter 13 bankruptcy, such as the credit counseling requirement. Before filing for bankruptcy through either chapter, you must undergo credit counseling. This is a mandatory requirement for anyone who files for chapter 7 or chapter 13. You must complete the counseling with an approved credit agency within 180 days before you file.
You will not qualify for chapter 7 bankruptcy or chapter 13 bankruptcy if you filed for bankruptcy in the preceding 180 days and did not appear in court. Likewise, you do not if you voluntarily dismissed a previous bankruptcy case after your creditors sought to recover your property.