Qualify for Bankruptcy

In order to qualify for bankruptcy, you need to meet certain legal requirements.  There is a limitation on the amount of assets that you can keep, as well as a residency requirement.  You have to pass the Means Test, and there are several other key requirements.  A San Diego bankruptcy lawyer can, after meeting with you and discussing your situation in detail, let you know whether you qualify to file for bankruptcy in San Diego.

Do I Qualify to File Bankruptcy?

A common question that I’m asked by many of my new clients is, “Do I qualify for bankruptcy?” I always begin by explaining to my clients that there are different types of bankruptcy and depending on their individual situation they may qualify to file one Chapter but may not qualify under another Chapter.  I then talk to them, determine what their needs and goals are, and then lay out their options and give my recommendation.  In the most basic terms, here are the main points to consider.

Amount of Assets

The first point to consider is the nature and amount of assets that your own.  When you file bankruptcy, you can only keep a certain amount of assets.  How much you can keep is determined by your applicable exemptions

Residency

The next point to consider in determining if you qualify for bankruptcy is where your state of residency is located at the time that you and where you have lived for the past 2 years.  You must file in the district where you have resided for the greater part of the 180-day period before you file your case.  Also, in determining your exemptions and how much property you can keep, your exemptions are determined by the state where you resided during the last 2 years.  If you resided in more than one state during the last 2 years, then your exemptions are determined by the place you lived during the 180 period prior to the last 2 years, which means the time period between 2 to 2 1/2 years ago.  Your residency can be very important because different states have different exemptions that will affect what property you get to keep when you file bankruptcy.

Means Test

The next point to consider is whether you can pass the Means Test.  If you can pass the Means Test, then you can file under Chapter 7  or under Chapter 13, which are by far the most common Chapters under which bankruptcies are filed each year and account for more than 99% of all filings.  If you cannot pass the Means Test, then you do not qualify for relief under Chapter 7 and instead will be required to file a Chapter 13 (instead of a Chapter 7) and repay a portion or all of your debts through a Chapter 13 plan.

Income

If you are filing under Chapter 7, then to qualify for bankruptcy your income needs to be low enough so that you can pass the means test.  If you are filing under Chapter 13, then you will need sufficient income to be able to repay all of your obligations that you propose to repay through your Chapter 13 plan.  Ideally, your income should be just enough to repay all of the debts you would propose to repay, because if your income is any higher then you will be required to contribute all of your excess disposable income to repay your credit card debt and other unsecured debt.

Married

Then next to point to consider is whether you are married.  If you are married, you don’t necessarily have to include your spouse in your bankruptcy, although if it is in your best interest then you do have the option to file as a married couple.  Also, if you are married, your spouse’s income will be taken into account in determining whether you qualify for bankruptcy and your spouse’s income just be disclosed to the Court in your schedules when you file.

Chapter 13 Debt Limits

If you absolutely need to file under Chapter 13 to repay missed mortgage payments and save your home from foreclosure, or to erase a 2nd mortgage through lienstripping, your total debt must not exceed the Chapter 13 debt limits.

Exceptions to Rules 

There are nuances and exceptions to the rules for qualifying for bankruptcy.  To truly determine if you qualify for bankruptcy under a particular Chapter, you need to discuss your specific situation with an attorney.

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