Today, there are many cases of filing for bankruptcy, since people have not yet come out of recession. But at the advent of strict bankruptcy laws in 2005, many people have to show their eligibility for filing for personal bankruptcy.

Bankruptcy laws making filing for bankruptcy impossible

Bankruptcy has really become less attractive because of the federal laws asking for various eligibility criteria. Before the bankruptcy laws came into being in 2005, people used to file personal bankruptcy even if they could tackle the debt on their own. But now the bankruptcy laws have become stricter and require you to cross some eligibility criteria for qualifying for it. If you want to consolidate debt, you can take help of other debt relief and options instead of going for bankruptcy filling.

Eligibility criteria to qualify for Chapter 7 bankruptcy

If you want to file Chapter 7 bankruptcy, you have to go through certain tests to prove that you really cannot consolidate your debts on your own or with the help of other debt relief options. Most of the debtors choose the Chapter 7 bankruptcy, which requires liquidation of assets over Chapter 13 bankruptcy (which requires you to pay back). The first test that sees your eligibility criteria is that your monthly income is measured. If your monthly income is equal or less than the average income of a similar household, you have the right to file for Chapter 7 bankruptcy. If your monthly income is more than the median income, you can’t file for this type of personal bankruptcy.

For the means test, you have to calculate your income that’s left with you after you subtract a certain amount for making important expenditures and making debt payments. If the amount you’re left with is more than the amount you subtracted, you cannot file for Chapter 7 bankruptcy.

Eligibility criteria to qualify for Chapter 13 bankruptcy

If you file for Chapter 13 bankruptcy, you have to go through certain tests to qualify for it. You have to prove that your disposable income, which is left after your allowed expenses and debt payments, is enough to pay toward Chapter 13 bankruptcy. This is the means test for Chapter 13 bankruptcy. According to bankruptcy laws, debtors have to put their disposable income in the repayment of debt under Chapter 13 bankruptcy. There is a little twist in the tale. Debtors should calculate their disposable income using not their actual expenses, but the allowed ones by IRS, in case their income is higher than the average income in their state. The allowed expense amount has to be subtracted from the average monthly income for the six months before filing for personal bankruptcy.

Before filing for bankruptcy, you need to go to a debt counseling agency approved by your state’s trustee. Toward the end of the bankruptcy, you need to go for these counseling sessions. Only if you show the proof of your taking counseling session to the court, will you be allowed to file for personal bankruptcy.

Photo © IRS EIN

No related posts.