Do I Qualify to file for Bankruptcy?
We are asked “Do I Qualify to File for Bankruptcy?” very frequently by our Indiana bankruptcy clients. The answer to this question is always “YES!” To some extent, everybody “qualifies” to file for bankruptcy. Bankruptcy is very similar to a “right” in the United States, briefly outlined in Article 1, Section 8, Clause 4 of the Constitution: “The Congress shall have power To . . .establish . . .uniform Laws on the subject of Bankruptcies throughout the United States”.
Therefore, a presumption exists that everybody in the U.S. has the ability to file bankruptcy. However, most of the time when people ask, “Do I qualify to file for bankruptcy?” they usually are referring to qualifying for Chapter 7 bankruptcy. The real question is, Are you eligible for Chapter 7 Bankruptcy?
Chapter 7 is the type of bankruptcy filing that eliminates all of your debts at one time. It is the “traditional” type of bankruptcy that most people understand. You can usually keep your house, cars, and property when you file Chapter 7 because these items are protected by Indiana’s bankruptcy exemptions. Chapter 7 is a “total debt relief.”
What Prohibits Me from Being “Eligible” for Chapter 7 Bankruptcy in Indiana?
Generally, there are three main reasons why you may not be “eligible” for Chapter 7 bankruptcy (or at least why Chapter 7 bankruptcy may not be possible): 1) You cannot “Pass the Means Test” for Chapter 7, 2) you have assets that would be lost if you file Chapter 7, or 3) you have filed Chapter 7 (or another form of bankruptcy) too recently in the past and cannot re-file Chapter 7 at this time.
Do I Qualify for Bankruptcy Part 1: Passing the Bankruptcy “Mean Test” in Indiana
The bankruptcy “means test” is the method that determines whether your income “qualifies” you to file under Chapter 7 (total debt relief) or forces you to file under Chapter 13 (an affordable monthly debt repayment plan that last 3-5 years). The means test was created to limit the filing of Chapter 7 to those who cannot afford to repay their debts. If you can afford to repay a substantial amount of your debt according to the “means test,” then the bankruptcy code forces you to file a Chapter 13 bankruptcy where you can pay some of your debts back.
Do I Qualify for Bankruptcy Part 2: Having “Too Many Assets” in Indiana
Indiana’s Bankruptcy Exemptions only protect a certain amount of property per bankruptcy filer. Because our website covers this in more detail in a separate section, we will only briefly describe some of the basic Indiana Bankruptcy exemptions: 1) $17,600 for your residence, $9,350 for all forms of personal property and “other” real property, and 3) $350 in cash or cash accounts. It is important to note that this Indiana Exemption list (of things protected – the amounts you can keep) doubles for a married couple filing. Also, this list here is NOT exhaustive of all Indiana exemptions. In certain, rare situations, our clients’ assets exceed what they can keep under the bankruptcy exemptions. In these situations, many of our clients CHOOSE to file under Chapter 13 instead of Chapter 7. These clients use Chapter 13 to pay back creditors to “extend” their bankruptcy exemption (or protection) to allow them to keep ALL their property. Therefore, when considering “eligibility” for Chapter 7, it is important to check whether Indiana’s bankruptcy will protect ALL your assets.
Do I Qualify for Bankruptcy Part 3: Filing a Chapter 7 Too Recently to Re-File Chapter 7
Chapter 7 bankruptcy can only be filed every 8 years. Therefore, every time a person near the Indianapolis area wants to file Chapter 7 for a second time, it is important to check if any previous bankruptcy has been filed within 8 years. Remember, you must go from the FILING DATE (not the discharge date) of the previous case to make sure that the proper 8 years have past. If 8 years have not passed since you filed Chapter 7 bankruptcy previously, you will still very likely be eligible for some form of Chapter 13 bankruptcy. A Chapter 13 case can also be used to stop your creditors and can also be a very powerful solution dealing with debt.
Conclusion: Virtually Everybody “Qualifies” for Some Form of Bankruptcy Relief
Because bankruptcy relief is very close to a fundamental or constitutional right in the United States, almost everyone qualifies for some form of bankruptcy relief. Whether or not you are fully “eligible” at this time for Chapter 7 bankruptcy should not determine whether you should seek the free counsel of a bankruptcy lawyer: you will generally have powerful options for dealing with your debt no matter what your financial situation. If you are worried about whether or not you qualify for bankruptcy, contact our office because we can help you no matter what town you live in Indiana or the Indianapolis area. We serve all of Indiana and the Greater Indianapolis area.