Filing for bankruptcy may help you escape financial trouble when you find yourself underwater and struggling to pay debts you cannot afford to pay. Whether through the discharges available through Chapter 7, or repayment plan available through Chapter 13, bankruptcy can give people struggling with debt the freedom they need from financial problems so that they can focus on a debt-free future.
What Qualifies You for Bankruptcies?
As discussed more below, there are several criteria that will affect qualifying for bankruptcy, nearly all of them financial. If filing for bankruptcy in Houston is on your horizon, there are some steps you can take to make yourself a better candidate for bankruptcy, according to the experts.
Here is how to qualify for bankruptcy:
First, stop paying creditors once you have determined that you cannot get ahead on your debts. Also, if you choose to pay one creditor in a large or unusual payment, sometimes called a “balloon payment,” this could be seen as a “preferential transfer” because one creditor benefits over all the others, negatively effecting your chance of getting a bankruptcy. Therefore, emergency final payments like balloon payments are not recommend if you are considering bankruptcy.
Second, avoid taking on new debts, such as credit cards or loans. This could lead to challenges by your creditors that you took out a debt close to the time you knew you were filing for bankruptcy with plans to seek a discharge of the debt. This could be viewed as a fraudulent activity by the bankruptcy court.
Third, other than starting to wind down payments on your creditors, don’t vary from your normal financial routine. For example, don’t try to transfer titles of cars, deeds of homes, or make large purchases. Don’t remove your name from LLCs other businesses you are a part of. You will be responsible for disclosing all of these types of actions when filling out the bankruptcy court forms, and such ‘sudden moves’ could, again, be construed as fraudulent transfer.
Fourth, if you have them, avoid draining down savings accounts such as retirement funds to pay off debts. At least, avoid taking such action until speaking with a qualified attorney, as many savings plans qualify for exemptions.
Do I Qualify for Bankruptcy?
To determine if you qualify for Chapter 7 bankruptcy, which includes discharges of your debts, you will need to take something called a “Means Test.” This is applicable to Chapter 7 and not Chapter 13, because Chapter 13 involves repayment, and having income is a desirable position to be in for Chapter 13.
In fact, when asking “which bankruptcy do I qualify for,” think about whether your bills are presently tough, or impossible. If the answer is tough, consider repayment under a Chapter 13; if the answer is impossible and impossible for the foreseeable future, Chapter 7 is the way to go.
The outcome of the Means Test is what qualifies you for bankruptcies, setting forth the most important bankruptcy criteria for eligibility. The Means Test is an income test to compare your average monthly income to the median income of other households in your specific region of Texas.
Filers calculate their average income during the six (6) months prior to the bankruptcy filing date to determine their average annual income and make the appropriate comparison. If your income is below the average income level for your region, you will pass the Means Test and be qualified to file for (Chapter 7) bankruptcy.
In response to questions we often hear, having a job will not disqualify you for bankruptcy, depending on the outcome of the Means Test. Owning a home, car, or other personal property also will not automatically disqualify you for bankruptcy, as many are considered to be exempt from Texas bankruptcy. The Means Test is how to qualify for Chapter 7 Bankruptcy, above all else.
Do I Qualify For Chapter 7 Bankruptcy?
Not everyone qualifies to file for debt relief under Chapter 7. Individual debtors must meet certain requirements to obtain a bankruptcy discharge in Chapter 7, including the Means Test, discussed above.
In addition to the outcome of the Means Test, here we discuss what happens if you have filed for bankruptcy successfully before. If you previously filed for a Chapter 13 reorganization bankruptcy, you may receive a bankruptcy discharge under Chapter 7 only after the passage of at least six (6) years. If you filed a previous Chapter 7 petition and received a discharge, you must wait eight (8) years from the filing date of the prior bankruptcy before seeking another one.
If you filed a previous Chapter 7 case but didn’t complete it and didn’t receive a discharge, you can file a new Chapter 7 at any time, provided the court in the previous case didn’t bar you from filing again by way of a specific order.
Remember, you must also meet the Means Test for the region of Texas you live in to see if you qualify for Chapter 7 bankruptcy.
Finally, you must complete a prebankruptcy credit counseling course conducted by an approved agency six (6) months before you file. Once the counseling is complete, you will receive a certificate that you are required to file with the court as an exhibit. After you file your bankruptcy petition, you will also be required to complete a debtor’s education course, which is designed to encourage good financial practices after your recovery from this temporary setback.
Do I Qualify for Chapter 13 Bankruptcy?
Sometimes, people need bankruptcy help sooner than six (6) to eight (8) years after filing a previous bankruptcy case, which as discussed above, puts limits on the possibility of another discharge under a Chapter 7 bankruptcy. Enter Chapter 13 Bankruptcy. The waiting time between a Chapter 7 Bankruptcy case and a Chapter 13 case is only four (4) years.
Additionally, Chapter 13 Bankruptcy counts on you having some income to be able to pay creditors under a structured repayment plan. Therefore, Chapter 13 does not rely on the Means Test like Chapter 11 does.
The Law Office of Seth Kretzer Can Offer Valuable Bankruptcy Case Insights
When considering whether you qualify for bankruptcy, you need a lawyer with specific experience on bankruptcy in Texas and who has the right knowledge and resources to help you.
Contact The Law Offices of Kretzer and Volberding P.C. today to schedule a free consultation so that you may discuss your case.