Do I Qualify for Bankruptcy in Renton?

To qualify for a Chapter 7 bankruptcy case, you must show that you are not abusing the bankruptcy system. That means you must show that you do not have any money left in your budget to pay unsecured debt such as credit cards, medical bills and signature loans (any debt that is not backed up by property). You must complete a means test to determine whether you can pay any unsecured debt.

The means test goes back six months and takes an average of that income. If the average is less than the median income for your household size in your state, you do not have to complete the rest of the form and there is no presumption of abuse. If it is above the median income, you complete the test which deducts secured debt payments (such as mortgages or car loans), taxes, child care, health insurance and other actual expenses. You also deduct some expenses that are set by law, such as food, clothes and transportation. If there is anything left in the means test, there is a presumption of abuse and it is your burden to show you are not abusing the bankruptcy laws. You also file projected income and expense on different forms but if that shows excess income in your budget, the burden is on the US trustee or a creditor to prove you are abusing the bankruptcy system. You can overcome the presumption of abuse by showing that the means test does not realistically show your ability to pay your debt. For instance, you may have suffered a sudden drop in income that is unlikely to get better or you may have a new household member, new medical expenses or some other necessary expense that can’t be pigeon holed into the means test. If a bankruptcy judge decides you are abusing the process by filing Chapter 7, you can convert your case to a Chapter 13 rather than having it dismissed. Sometimes it is worth a try in close cases.

In general, anyone can “qualify” for bankruptcy. The question is what chapter is right for you. Before filing your case, you must take a credit counseling class. This class is cheap and can be completed on line. You can only file one Chapter 7 every eight years if you received a discharge in the first case.

A Chapter 13 repayment plan is easier to qualify for. Naturally, because Chapter 7 usually allows people to wipe out a lot of debt without losing property or making any payments, the standards are stricter. Chapter 13 provides monthly payments to creditors and is easier to qualify for but your plan must be approved by the bankruptcy judge. There are debt limits to a Chapter 13 as well. If you have over approximately one million in secured debt or $350,000 in unsecured debt, you have to file a Chapter 11 (unless you qualify for Chapter 7 of course).