Bankruptcy is a vital legal tool utilized by millions of people across the United States every year. There are several different forms of bankruptcy, however, and it’s important for a debtor to select the bankruptcy that best fits their circumstances. Each form of bankruptcy has different advantages and disadvantages, and there are different eligibility requirements for different chapters.
If you owe more than you can pay or are struggling with interest and principal payments for medical debt, credit card bills, or other debt, call the knowledgeable bankruptcy attorneys at Rounds & Sutter LLP. We’ll work with you to identify the best road to financial relief, whether that means bankruptcy or other debt-relief options. If bankruptcy is the right choice for you, we’ll help you maintain eligibility for the most advantageous bankruptcy chapter.
Qualifying for Chapter 7 Bankruptcy
Chapter 7 bankruptcy is intended for low-income or no-income debtors who need complete financial relief. Chapter 7 is not available for all debtors; filers must demonstrate that their income is below a certain threshold in order to qualify.
For individual debtors, if their current monthly income is below the state’s median income, the debtor automatically qualifies for Chapter 7. If the debtor’s income exceeds the state median, the debtor may still prove eligibility by way of the “means test.” The means test compares the debtor’s average gross income over the prior six months against the debtor’s living expenses, based on criteria set by the IRS. The means test involves both set values for certain expenses (adjusted based on the city in which the debtor lives) as well as expenses specific to that debtor (such as medical bills). With help from a seasoned California bankruptcy attorney, you can maximize your chances for Chapter 7 eligibility.
Qualifying for Chapter 13 Bankruptcy
Chapter 13 bankruptcy is reserved for individuals who earn a steady income and would be able to repay much of their debt over time, if given additional leeway to do so. It’s not meant for people with no income or very low income, although there’s no technical minimum for filing. There are upper limits, however, on the total debts allowed for a debtor to rely on Chapter 13.
Currently, a debtor can file for Chapter 13 relief so long as their total secured and unsecured debts are less than $2,750,000 as of the date of filing. Debtors must satisfy certain other criteria as well:
- The debtor must undergo credit counseling from an approved credit counseling agency prior to filing for Chapter 13.
- The debtor must not have had a prior bankruptcy proceeding dismissed within the last six months based on willful failure to appear or other failure to comply with court orders.
Chapter 13 is meant for income earners who could pay down their debt over time. The court will only approve the Chapter 13 plan if the debtor has sufficient income to cover monthly payments for the duration of the repayment period. If the debtor does not have sufficient income to pursue a repayment plan, the bankruptcy plan may not be confirmed.
Additionally, the debtor’s income may affect the plan in other ways. If the debtor’s income is below the state median, the debtor can propose a three-year repayment plan. If the debtor’s income is above the state median, the court will usually require a five-year repayment plan.
Talk to your California bankruptcy and debt relief attorney to discuss whether Chapter 13 is appropriate in your case.
Qualifying for Chapter 11 Bankruptcy and the Small Business Debtor
Chapter 11 bankruptcy is typically utilized by businesses dealing with too much debt to stay afloat. Although there are no technical requirements to filing for Chapter 11–just about any individual or business can utilize Chapter 11–it’s one of the most complex and, usually, costliest, forms of bankruptcy. Although normally utilized for businesses, Chapter 11 can also be a valuable tool for individual debtors under certain circumstances. For instance, Chapter 11 may also be a viable option for individuals whose debt exceeds the limits imposed by Chapter 13.
Additionally, the law includes special provisions for small businesses in Chapter 11. A qualifying “small business debtor” can benefit from a “fast track” through the Chapter 11 process, which can greatly reduce the legal costs and the costs to restructure. A small business debtor is a person or entity who is (a) engaged in commercial activity, and (b) owes no more than $3,024,725 total in secured and unsecured debts (as of 2023).
Furthermore, the Small Business Reorganization Act (SBRA) was enacted for small business debtors and qualified individuals as an alternative to the regular Chapter 11 requirements. The SBRA is intended to lower costs and streamline the plan confirmation process to help enable debtors to survive bankruptcy and retain control of their operations and finances. Discuss your options with your debt relief attorney to see whether Chapter 11 makes sense for you as an individual or small business.
Call Debt Relief Firm Rounds & Sutter for Help Qualifying for Bankruptcy
If you are dealing with significant debt as an individual or small business in Southern California, the bankruptcy law firm Rounds & Sutter is ready to help you. Contact Rounds & Sutter at our offices in Westlake Village or Ventura today for a consultation. We provide stellar advice and trusted representation in the face of life’s challenges.