The unfortunate reality of the world we live in is that sometimes bad things happen and we find ourselves in a situation we never wanted or expected. Nobody who gets married plans to divorce. Nobody who buys that car with its special safety features ever wants to need them. And nobody ever plans to get themselves so deeply in debt that they have to file for bankruptcy. Sometimes, however, these things happen – whether due to mistakes or misfortune – and you’re left asking a question that you never wanted to ask: “Can I File for Bankruptcy?”
The answer, it turns out, is a somewhat complex, and depends on what kind of bankruptcy you want to file. Depending on the kind, you will have to meet several requirements, and may still have to pay back some or all of your debts.
Types of Bankruptcy
There are several kinds, or chapters, of bankruptcy that can be filed in the United States. They are named according to the chapter in Title 11 of the U.S. Code that covers them. Chapter 11 is among the most widely known, but is used primarily by businesses. The two most common forms of bankruptcy for individual debtors are Chapter 7 and Chapter 13. Each has different characteristics and slightly different eligibility requirements.
Chapter 13 bankruptcy is also known as Wage Earner Bankruptcy, and is designed for debtors who have a regular income. It requires the debtor to follow a repayment plan whereby the creditor is able to recoup at least as much as they would have under a liquidation (i.e., Chapter 7) bankruptcy. Here are the eligibility requirements for Chapter 13 bankruptcy.
- The debtor is an individual (not a business)
- The debtor has a steady income that exceeds his or her basic living expenses
- The debt for which relief is sought cannot be greater than $360,475 for unsecured debt or $1,081,400 for secured debt.
Chapter 7 bankruptcy is the simplest and most common form of individual bankruptcy in the United States. It is also referred to as a “straight bankruptcy” or a “liquidation bankruptcy.” With a Chapter 7 bankruptcy you typically do not have to repay any of your debts personally, however your assets (house, car, etc.) are liquidated in order to repay some of what you owe to your creditors. Here are requirements for Chapter 7 bankruptcy:
- The debtor can be an individual, married couple, or business.
- The debtor must live in the U.S.
- The debtor must submit to a means test
- The debtor cannot have had a bankruptcy petition denied in the last 180 days.
If you are in a situation where you find yourself asking “Can I File for Bankruptcy?” – you should consult an attorney and a financial counselor to make sure that bankruptcy is really your best option. Part of that means knowing which kind of bankruptcy best suits your situation. Knowing that will enable you to make the best decision for yourself, your business, or your family moving forward.