Some potential candidates for bankruptcy dismiss the idea of filing a Chapter 7 or Chapter 13 bankruptcy without fully exploring their options. This is often due to misconceptions about the bankruptcy process, the eligibility requirements for a bankruptcy, or what bankruptcy can accomplish. The following are four common misconceptions about filing for bankruptcy.

 

1.   You Need to Be Insolvent to File for Bankruptcy

 

There is no requirements that you miss any payments before filing for bankruptcy. If you are current on your payments, but will not be able to meet payments in the near future, you can still file for bankruptcy, subject to the other eligibility requirements.

 

Some debtors may file for bankruptcy without missing any payments. A sudden reduction in income can require a bankruptcy filing, even if you have stayed up to date on all of your payments so far. By filing for bankruptcy without missing payments, you will also be able to avoid being contacted by creditors or collection agencies.

 

2. You Will Lose All (or Most) of Your Property During a Bankruptcy

 

Property loss is possible during a bankruptcy, but should only happen if it is part of the plan you and your bankruptcy attorney develop. You should only file bankruptcy once you are aware of what property you will have to surrender, and you have decided that the benefits of bankruptcy outweighs the costs of your loss of property.

 

Many Chapter 7 bankruptcy cases are no-asset cases, where the debtor has no nonexempt assets to give to their creditors. In these cases, you will keep your property while still receiving a bankruptcy discharge of your nonpriority unsecured debt. Talk to a bankruptcy attorney to figure out if your case will be a no-asset case.

 

3. If You Make Too Much Money, You Can’t File for Bankruptcy

 

There are income limits to filing a Chapter 7 bankruptcy, but they don’t automatically disqualify people who make too much money. First, if you make less than your state median income, you do not have to take the means test, and you are generally eligible to file Chapter 7 bankruptcy. However, even if you make more than the state median income, you aren’t necessarily ineligible for Chapter 7.

 

You will be required to take the means test, which looks at your income minus certain statutorily allowed expenses. If you pass the means test, you can still file a Chapter 7 bankruptcy, even though your income is above the state median. Even if you fail the means test, you may be able to overcome the presumption of abuse by showing special circumstances that justify higher household expenses.

 

If you still can’t qualify for Chapter 7, a Chapter 13 bankruptcy may be a viable option.

 

Bankruptcy is a complex and nuanced area of law. Contact the Law Office of Barbara B. Braziel to talk about your unique financial situation and how a bankruptcy could help you.

 

We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.