Criteria for Filing for Bankruptcy
Before October 2005, it was relatively easy for U.S. residents to file for bankruptcy. But with the restrictions the new laws imposed, declaring bankruptcy became more difficult. Now there are guidelines that must be followed for a federal judge to grant a personal bankruptcy. Here are the steps you must follow.
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Chapter 7 versus Chapter 13 Bankruptcy
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Before the passage of the new laws, a bankruptcy judge could decide if you qualified for dismissal of all your debts through Chapter 7 bankruptcy. If the judge turned down your request, you could file a petition for a Chapter 13 bankruptcy that requires you to pay off your secured creditors in five years or less.
The new law imposed specific criteria that the judge must follow with regard to your income and your ability to repay some of the debt with disposable income. Two questions will be asked.
How Much Is Your Income?
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Each state determines the median monthly income for residents to live there. That figure is measured against the monthly income you received over the six months before you filed for bankruptcy. If the state's median monthly income exceeds yours, the judge will allow you to file for Chapter 7 bankruptcy. If your monthly income exceeds the state's median income, you will be required to pass another test.
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How Much Is Your Disposable Income?
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Disposable income is the amount you have left over after your living expenses and repayment of secured creditors.
If your monthly income exceeds the state's median income, you must take a federally mandated "means test" to determine whether you can repay your unsecured creditors within five years after allowable expenses and the monthly debt service of secured creditors have been accounted for. The cost to live in one community versus another can fluctuate, so use calculations based on where you live. With that information, a bankruptcy judge can determine whether you qualify for a Chapter 7 or a Chapter 13 bankruptcy, if at all.
If You Have Previously Filed for Bankruptcy
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You may file for either Chapter 7 or Chapter 13 bankruptcy if your debts were discharged under Chapter 7 more than eight years ago or if you went through a Chapter 13 bankruptcy more than six years ago. You can refile a Chapter 7 or a Chapter 13 bankruptcy petition if the case was dismissed more than 180 days ago because you disregarded a court order, committed fraud in making the application or asked for a dismissal of your case after one of your creditors asked the court for relief.
Concealing Assets is a No-No
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If the court decides that you tried to defraud your creditors by concealing assets, your case will be dismissed. A bankruptcy judge will not be pleased if you transfer assets to family or friends, go on a spending spree with no way to pay for it or lie about your debts or income on an application for credit.
Penalty for Perjury
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Once your petition is complete, you must sign it. If it does not contain all of your assets and vital information about your financial affairs, it can be dismissed and you can be criminally prosecuted.
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