Who Can File for Bankruptcy Relief?

The good news is that any person or company can file for bankruptcy relief. However, filing for bankruptcy relief and receiving a bankruptcy discharge are two separate events. The bankruptcy discharge is the goal of filing for bankruptcy relief. The discharge releases the debtor’s legal liability to repay discharged debts. Therefore, the true question is whether or not you can qualify for a bankruptcy discharge.

Find Out if You Qualify for Bankruptcy Relief With a Free Case Review!

If you have additional questions, take advantage of a free consultation with a bankruptcy lawyer. During your free case review, a bankruptcy attorney evaluates your financial situation. The attorney explores various bankruptcy and non-bankruptcy solutions to help you choose the best option for eliminating your debt problem.

What Laws Govern Who Can File for Bankruptcy Relief?

Filing for bankruptcy relief is a well-established process for debtors to obtain a fresh start when facing overwhelming debt. The United States Supreme Court echoed the reason for bankruptcy laws in its 1934 opinion in the case of Local Loan Co vs. Hunt. The ruling stated that bankruptcy gives a debtor a “new opportunity in life” without the “pressure and discouragement of preexisting debt.” Bankruptcy relief allows a debtor to move past a financial hardship to recover and rebuild for a better financial future. The Bankruptcy Code governs who is eligible for a bankruptcy discharge.

The United States Constitution gives Congress the authority to enact bankruptcy laws. Under this authority, Congress enacted the current Bankruptcy Code in 1978. The Bankruptcy Code has been amended several times since it was enacted. In 2005, Congress made sweeping changes to bankruptcy laws by passing the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). BAPCPA significantly changed some of the qualifications for obtaining a bankruptcy discharge.

Most of the bankruptcy cases filed each year are filed under one of three chapters of the Bankruptcy Code. The law defines who can be a debtor under each chapter of bankruptcy:

  • Chapter 7 Bankruptcy Filings

Individuals, couples, corporations, partnerships, and other business entities can file under Chapter 7. Chapter 7 is also referred to as a liquidation bankruptcy. If a business files under Chapter 7, the business ceases to operate. For individuals who file under Chapter 7, the bankruptcy trustee may sell any property that is not exempt. However, most individual cases filed under Chapter 7 are no-asset cases, meaning the debtors keep all their property while getting rid of all, or most, of their debts.

Individuals who file under Chapter 7 must pass the Means Test to be eligible for a bankruptcy discharge. The Means Test compares the debtor’s income to the average income of other debtor’s in the area. If the debtor’s income exceeds the median income level, the debtor may not be eligible to receive a bankruptcy discharge under Chapter 7. However, there are some exceptions to this rule, so you should always consult an experienced bankruptcy attorney to determine if you qualify to file a Chapter 7 bankruptcy case.

Find out now if you qualify to file under Chapter 7 by scheduling a free consultation with a Chapter 7 bankruptcy attorney.

  • Chapter 13 Bankruptcy Filings

Chapter 13 bankruptcy cases are also referred to as wage-earner bankruptcy cases. Individuals and couples are eligible to file under Chapter 13 if they have a steady income and their debts do not exceed the maximum debt limits set by law for Chapter 13 cases. Individuals who are self-employed or operate an unincorporated business can qualify to file under Chapter 13.

In a Chapter 13 case, the debtor files a repayment plan that reorganizes debt into an affordable monthly plan. Chapter 13 bankruptcy plans have several advantages. For instance, you might lower the interest rate on your vehicle loan and lower the amount owed on the secured lien. In some cases, you might be able to value a second mortgage at zero, thereby eliminating the secured debt owed on the mortgage.

Contact a Chapter 13 bankruptcy lawyer for a free consultation to learn how filing under Chapter 13 can help you keep your property and get out of debt.

  • Chapter 11 Bankruptcy Filings

Individuals who exceed the debt limits under Chapter 13 (this is very rare) can file under Chapter 11. Corporations and other business entities may also file under Chapter 11. Under Chapter 11, a debtor proposes a plan to reorganize debts, much like a Chapter 13 plan but on a much larger scale. Chapter 11 is used mostly by large corporations that are experiencing financial trouble and need bankruptcy assistance to continue operating. Almost all individuals who want to reorganize their debts file under Chapter 13.

Bankruptcy Discharges and Debts

Most unsecured debts are eligible for discharge under all chapters of bankruptcy. Examples of unsecured debts discharged in a bankruptcy case include:

  • Credit card debt
  • Medical debts
  • Personal loans
  • Old rent and utility balances
  • Advance Payday loans

Income taxes and student loans are typically not eligible for a discharge; however, there are a few exceptions. Child support and alimony are non-dischargeable in any case.

In most cases, debtors can get rid of all unsecured debts through a Chapter 7 or Chapter 13 bankruptcy filing. If you qualify for a Chapter 7 case, you could eliminate your debts in as little as four to six months. Bankruptcy lawyers work closely with clients to determine the quickest and most affordable solution to their debt problems.

Why Do People File for Bankruptcy Relief?

Many people file Chapter 7 or Chapter 13 because of a financial hardship such as:

  • Unemployment
  • Loss of a spouse
  • Reduction in income
  • Divorce
  • Sudden illness or accidental injury
  • Disability
  • Business closing
  • Mismanagement of finances

The reason you need to file for bankruptcy relief is not a factor in eligibility for a bankruptcy discharge. Therefore, if you got in over your head with credit card debt, you are entitled to a bankruptcy discharge just like a debtor who has overwhelming medical debt or who is unemployed.

Free Bankruptcy Consultations

Learn more about how filing for bankruptcy relief can solve your debt problems quickly and affordably. Schedule your free consultation with an experienced bankruptcy lawyer today.