A Chapter 7 Case for a Family of Four
A young married woman with a husband and two children, who are living with her mother, recently posted on a bankruptcy site about her financial woes. She lives in New Jersey and wants to know if she should file for a Chapter 7 bankruptcy.
No one can really tell her whether she should file bankruptcy or not, but understanding the bankruptcy process helps those considering filing and whether you should make the decision.
Filing for a Chapter 7 bankruptcy depends on a lot of financial circumstances. Filing any bankruptcy depends on similar circumstances. He are some of the circumstances you might want to consider before filing bankruptcy:
The Means Test Should be Considered
To file a Chapter 7 bankruptcy in any state, you have to be either below the median income for a family your size in the state in which you live or you have to pass the Means Test.
The Means Test is a test devised by Congress in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. It was devised to stop serial filers from filing bankruptcy and abusing the system, and the Means Test itself is a complicated formula to help you see whether or not you have enough disposable income to pay some of your debtors. If you do, you have to file a Chapter 13 in lieu of a Chapter 7.
In the case of the family of four in the illustration, the husband makes $38,000 per year and is not necessarily the only household earner. The mother’s salary must be included in the means test to determine whether the husband and wife qualify. In New Jersey, the median income for a family of four is $101,000, so depending on the mother’s salary, it would determine whether or not the couple would have to pass the Means Test.
Your Personal Assets Play a role in Helping You Decide
How much income you make is only one of the deciding factors in determining whether you can file a Chapter 7 or not. Most Chapter 7 bankruptcies are filed by people with little or no personal non-exempt assets.
State and federal laws determine what personal assets you can keep when you file for any bankruptcy. Exempt personal assets are those defined by either state or federal bankruptcy laws. In a Chapter7, any non-exempt asset will be taken and liquidated in order to pay off unsecured debtors in a prioritized list.
The couple in the illustration did not have any personal non-exempt assets, and from that perspective, they would be candidates to file a Chapter 7.
The Amount of Dept You Owe Can Help You Decide Whether to File
How much debt you owe can play a large role in not only determining whether or not to file bankruptcy, but it can help you determine which bankruptcy to file.
A Chapter 13 has ceiling limits on the amount of debts you owe, but a Chapter 7 does not. Neither have a minimum amount of debt to file, but what is the sense of filing if you have no debt nor assets to protect?
If you cannot pay down any principal on the debts you owe plus the interest owed after paying all your living expenses that include taxes and retirement, you are theoretically bankrupt. If you owe large unmanageable debts that are non-exempt from bankruptcy discharge and cannot possibly begin to pay them down within a five year period, you might be a candidate for filing a Chapter 7.
The couple in our illustration owes over $18,000 in credit cards, a small hospital debt, and they have two very small exempt student loans.
From the information provided and since they live with her mother and make the kind of money they do, there is the possibility they can pay much of their debt off in five years.
Whether the couple decide to file bankruptcy or not, they probably need to sit down with an experienced bankruptcy lawyer to help them decide.
- Chapter 7 and When to File a Non-Consumer Bankruptcy (betterbankruptcy.com)
- Chapter 7 Questions and Potential Answers (betterbankruptcy.com)
- Chapter 7 Bankruptcy and Preparing to File (betterbankruptcy.com)
- Are There Good Reasons Not to File a Chapter 7? (betterbankruptcy.com)
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