When potential clients call my office to make an appointment it is not uncommon for them to state that they would like to make an appointment to discuss bankruptcy, but then apologize because they don’t know if they qualify. No apology necessary. Of course you don’t know whether you qualify for bankruptcy in 2014….and why should you? If you are calling my office I understand that you need assistance from a bankruptcy attorney to explain your options and whether or not you qualify for bankruptcy. That being said, I can say that just about everyone qualifies to file a bankruptcy in 2014. The better question is whether or not bankruptcy is a good idea.
So long as a court hasn’t ordered you not to file bankruptcy for a set amount of time (which likely has only happened if you have recently filed a bankruptcy that was dismissed) you can qualify to file a bankruptcy. However, there are several types of bankruptcy so the question is which type of bankruptcy. Chapters 7, 9, 11, 12, and 13 are all different tools that can be used to solve or manage debt problems. Most individuals only file a Chapter 7, 11 or 13. A Chapter 7 bankruptcy is a fresh start that wipes the slate clean without the person filing bankruptcy making any payments to the bankruptcy trustee. An 11 is typically filed by an individual who owns a business and has significant debt that precludes him or her from filing a Chapter 13 bankruptcy. A Chapter 11 bankruptcy allows an individual to manage debt obligations through a repayment plan and is most often utilized by an individual who owns a business. A Chapter 13 is commonly used by individuals who have either filed for Chapter 7 bankruptcy and received a discharge in the past 8 years, who have significant assets that they want to protect, or who make too much money to file Chapter 7.
The real question that Hoosiers are typically asking when they are asking about bankruptcy is whether they qualify for Chapter 7 bankruptcy. This is the type of bankruptcy that individuals most commonly see as their best way out of debt. For many people who are struggling with debt payments that they cannot afford, Chapter 7 sounds appealing because it does not require that you repay creditors through a repayment plan. In order to qualify for Chapter 7 bankruptcy you and/or you and your spouse if you are filing jointly must: 1) not have more than $100.00 left over at the end of the month after paying your reasonable living expenses and 2) either make less than the average household of your size in Indiana OR pass a means test that shows you objectively have $166.67 or less each month. If you can’t pass either one of these tests it often means that a Chapter 7 isn’t going to work. However, just because you can pass these test doesn’t mean that Chapter 7 is a good idea. Come on, if it were that easy to advise people about bankruptcy no one would really need a bankruptcy attorney.
So, why might it not be a good idea to file a Chapter 7 bankruptcy? The reasons are numerous and I will never be able to address them all in this blog, but I’ll try to go through some reasons I believe are significant. First, because you own too much stuff. As I write this in 2014 in Indiana (assuming you have lived in Indiana for the majority of the last 2 years) you can have the following amount of assets that are protected from seizure for the benefit of your creditors if you file an individual* Chapter 7 bankruptcy. There are other exemptions, but these are the most often used:
-$350 in cash, stocks and bonds;
-$9,350.00 in personal property (furnishings, equity in a vehicle(s), jewelry, clothing, DVDs, Computers, and just about every other “thing” you own);
-$17,600.00 in equity in your primary residence;
-A virtually unlimited amount in an IRA or 401(k)
-Any cash value in a life insurance policy that have that has been in place for at least one year and the beneficiary is a dependent child.
*Double the amounts of the exemptions allowed if you are filing a joint Chapter 7 bankruptcy.
It isn’t hard to see that if you have $50,000.00 in equity in your home that Chapter 7 bankruptcy probably isn’t a good option for you. If you file an individual Chapter 7 bankruptcy with this amount of home equity the bankruptcy trustee is going to ask you to hand over $32,400.00 to keep your home. When you inevitably do not have that amount of money on hand the bankruptcy trustee will just go ahead and sell your home and pay you the $17,600.00 in equity that you are allowed to exempt in the bankruptcy. It’s not hard to see why this is a bad idea. However, there are many other situations that are less obvious reasons to avoid Chapter 7 bankruptcy in favor of Chapter 13.
While many people thinking about filing bankruptcy shy away from Chapter 13 because it requires a monthly payment to the bankruptcy trustee for 36 to 60 months, it can also allow debtors to keep property that would not be exempt in a Chapter 7 bankruptcy so long as their unsecured creditors obtain at least as much in the Chapter 13 as they would have in a Chapter 7 had the un-exempt property been liquidated by the trustee and paid out to creditors. Other examples of when it is a good idea to explore the possibility of Chapter 13 include:
-When, due to a temporary hardship or job loss, a mortgage payment falls behind. If the potential bankruptcy debtor(s) now have the ability to make that payment plus some extra to the trustee to catch up the payment;
-When the potential bankruptcy debtors owe significant income tax liabilities and they need to pay them over time without fear of garnishment or levy;
-When you have fallen behind on car payments for a vehicle that you want to keep…especially if you purchased the vehicle more than 2.5 years ago and the vehicle is worth less than you owe.
-When you have two mortgages on your home and your home is worth less than you owe on the first mortgage. In a Chapter 13 bankruptcy petition, it may be possible to remove the second mortgage from your home and repay it as an unsecured debt through the bankruptcy.
I meet with people all the time who are considering bankruptcy. The fact patterns are different each time. Changing one fact may change the advice that I give a person regarding whether or not I would advise bankruptcy and, if I would advise bankruptcy, what type of bankruptcy. The good news is that Halcomb Singler, LLP, offers a free initial consultation to those considering bankruptcy. And, if either I don’t recommend bankruptcy or you decide that you do not wish to file bankruptcy, Halcomb Singler can assist with defending you in a collections lawsuit, negotiating settlements with your creditors and aid with forming a financial plan for your future. Halcomb Singler does not charge a fee for this initial consultation. If you live in the Indianapolis area including Hamilton County, Boone County, Fishers, Noblesville or Zionsville and would like to set up an appointment at our Carmel office please call (317) 575-8222 or click here and we will contact you.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.