The “Middle Ground” Between Chapter 13 And Chapter 7 Bankruptcy

When you file for bankruptcy, the bankruptcy court will look to see how much money that you make in income. This is an important analysis—while you technically and legally can file for bankruptcy no matter what your income, the larger question becomes what type of bankruptcy you can file.

In most cases, you can’t choose what chapter of bankruptcy to file—your income will dictate which chapter is right for you. The two bankruptcy chapters that most people qualify for are either Chapter 7 or Chapter 13.

Your Income and Chapter 7 Bankruptcy

Chapter 7 is beneficial and preferable to most people, because no payments need to be made, it is quicker, and at the end, there is a complete discharge of all debts (save for those in limited categories that cannot be discharged in any bankruptcy).

But not everybody can file for Chapter 7 bankruptcy. There is an income limit, determined by the means test. If you make too much money, your Chapter 7 bankruptcy can be challenged, and you will be forced into Chapter 13 bankruptcy.

Making Too Little for Chapter 13

Chapter 13 bankruptcy does have a lot of benefits, but many people don’t like the fact that Chapter 13 requires that you make some regular payments towards your creditors. Still, those payments are small, and limited in time, and at the end of your repayment period, you still get a complete discharge from any and all debts.

The problem is that the payments in a Chapter 13 are based on calculations and the types of debts you have and the property that you have. You have some, but not much, control over the monthly payment amount. Whatever that amount ends up being, the court needs to see if you make enough money to actually pay that repayment amount.

The court won’t allow you to agree to a repayment plan if your income indicates there’s no way for you to actually afford the repayments.

Yes, you’re right in what you are thinking: While you can make too much money for a Chapter 7, you can also make too little money for a Chapter 13.

What is Your Income?

Your income, for the purpose of bankruptcy, is based on your average income from the six months before you filed for bankruptcy. There are ways to time your bankruptcy filing to maximize or minimize the income that your bankruptcy schedules show that you make, which may better help you qualify for one or the other.

The problem can be if you have property that you want to keep in the bankruptcy. Chapter 13 lets you keep that—but that means that you must have the income to qualify for your chapter 13 repayment plan.

Your bankruptcy attorney can review your options, and tell you which chapter you qualify for, and which ones you may have problems qualifying for.

Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 for help deciding what Chapter of bankruptcy is right for you.

Sources:

justice.gov/ust/means-testing

nerdwallet.com/article/finance/bankruptcy-means-test