Sometimes in life, your monetary debts could be high and your finances low. Lenders may be calling you, yet you are not able to repay them. This is when you could consider filing bankruptcy. Filing bankruptcy in Los Angeles is an overwhelming process, especially if it is your first time. The main concern is what you have and require to do to be eligible for bankruptcy. Yours is a lawful concern because not every person meets the insolvency requirements. Moreover, qualifications depend on the chapter you wish to file. Experienced attorneys at Los Angeles Bankruptcy Attorney can help in determining if you can file a petition or not as well as advise you accordingly.
Determining Chapter 7 Bankruptcy Eligibility
If you are struggling with debts, you can file Chapter 7 to wipe off all outstanding debts and start again on a clean slate. In Chapter 7, some assets are sold, and the proceeds used to clear some or all the debts. In case you do not have assets, which can be sold, most of the debts will be canceled or discharged at the case’s end.
Discussed below is a Chapter 7 eligibility criteria:
You are a Married Couple, Sole Proprietor, or an Individual
You cannot bring a consumer Chapter 7 case for a partnership, limited liability company (LLC), or corporation. Instead, you should bring a business Chapter 7 case that is different from what is discussed in this article.
Eligible persons include:
- An individual
- A sole proprietor with personal liability on business debts
- A married person who is filing bankruptcy jointly with their partner
An individual in a business partnership with a person who isn’t their spouse and wishes to file for bankruptcy on business debt which they have personal liability
Enrolment in Credit Counseling Classes
To bring any form of bankruptcy, you should enroll in a credit counseling program in a government-approved agency. You do not have to receive counseling before filing for bankruptcy, but you should complete the classes no more than six months before the bankruptcy discharge.
Part of the program is a 2-hour financial management course.
While agencies that offer counseling classes are not always non-profit, they should offer lower-cost or free services if you cannot afford the entire price.
Failure to receive the counseling within the stated time frame could cause your case to be dismissed.
You Haven’t Had a Current Bankruptcy Dismissal
A debtor cannot file the bankruptcy chapter in question if they had their bankruptcy case dismissed within the previous six months due to the following reasons:
- The debtor broke a court order.
- The debtor violated the bankruptcy system.
- The debtor asked for dismissal because the lender requested an automatic stay to be lifted.
- The debtor made a fraudulent filing.
You Haven’t Had a Recent Bankruptcy Discharge
The law stops people from constantly acquiring debts and discharging them in court. You can’t get another Chapter 7 bankruptcy discharge if you obtained a discharge of your debts in a Chapter 7 bankruptcy case within the last eight years, or a Chapter 13 case within the previous six years.
Please note, the filing period begins from when your prior bankruptcy was brought (not when your bankruptcy was discharged).
You Should Pass a Means Test
The means test compares the monthly income of California’s median family income for a family of your size. If the income is above California’s median income, you cannot file Chapter 7.
The means test is needed if half of your debt originates from consumer purchases instead of tort debts, tax, or business. If the income doesn’t satisfy the means test, it means you have a lot of money left after footing your bills to repay your debts.
Seek a Lawyer’s Advice
If you are contemplating bankruptcy and are not certain if you meet the requirements, seek advice from an attorney. The bankruptcy lawyer will evaluate the finances and debts and determine if you qualify to file Chapter 7.
Completing the Means Test
At first, Chapter 7 can seem confusing, but it is easy to understand once you break the process down. It entails filling Form 122A-2 as well as Form 122A-1. It also involves calculating using the details you get to check if you pass the means test.
This form pays attention to the monthly income, filing, and marital status against California’s median income.
You should file the form if you are an individual bringing a Chapter 7 case. If you are filing bankruptcy together with your partner, both of you will submit one form. However, different forms could be needed in given instances.
How to Fill the Form
Discussed below is a comprehensive guide on how to fill the form:
Step One: Fill in the Case Details
In the form’s top box, fill in details concerning the bankruptcy case. Fill in the case number, the court you filed in, and your name.
Leave the field blank if you do not have the case number.
Step Two: Fill in the Filing and Marital Status
The next step involves the debtor filing either of the following:
- Married and they are filing bankruptcy together with their spouse
- Married and their partner isn’t filing bankruptcy together with them, and they and their significant other are either:
- Legally separated or living separately
- Living in the same home and not lawfully separated
Step Three: Filling In Income Details
Depending on the answers to the sections above, you will either fill the form describing only the income or giving information about your income and your partner’s income separately in 2 columns.
Filling in your mean monthly income should be simple. Just add up all your income for six months and then divide the total by 6.
You will also provide your gross income (income before deductions and taxes). You ought to be in a position to get it on your paystub.
Moreover, you will be needed to highlight any other form of income. Remember to take in income from your investments like dividends, retirement income, unemployment income, alimony, and child support. If you are not sure about how much you received from any of the sources, confirm from your six-month bank statement.
Step Four: Calculating the Annual Income
Because a year has twelve months, you should multiply the income (monthly) by twelve to get the annual income. Compare the yearly income to California’s median family income for the household size. You can find this on the U.S Department of Justice site.
To get your median income figure, go to the yellow box. Then choose the right date. Click “GO.” Hit the “Median Family Income Based on Territory/State and Family Size” link. Move across the row to get the column, which concerns your household size.
Below is California median income standards for means test for bankruptcy cases brought on and after May 1, 2020:
- One household member - $59,286.00
- Two household members -$77,860.00
- Three household members - $86,665.00
- Four household members – $99,512.00
- Five household members - $108,512.00
- Six household members - $117,512.00
- Seven household members - $126,512.00
- Eight household members - $135,512.00
- Nine household members - $144,512.00
- Ten household members - $153,512.00
This form pays attention to calculating disposable income, depending on the expenses and income.
If your Form 122A-1 indicates that the income is above California’s median, you should bring Chapter 7 Means Test Calculation (Form 122A-2). It’s the means test (the calculation you fill in this form determines the amount of money you’ve to clear other debts).
In case the amount is too high, it could be assumed that you have a lot of income to be eligible for a Chapter 7 case. It is known as the presumption of abuse. Should the form in question show presumption of abuse, you can still be eligible provided you can establish circumstances which increase expenses or reduce income.
Below is a step-by-step method of filling the form out:
Step One: Fill in the case details
Fill in this section the same way you handled case information in the previous form.
Step Two: Determine the Adjusted Income
You can refer to the answers you gave on the previous form when determining the adjusted income.
A debtor can copy their current income from the previous form.
Following Line 3 instructions, take away any part of your partner’s income that does not take care of household expenses.
Step Three: Calculate Deductions from the Income
Filling this part out can be overwhelming; the form is very detailed. Be sure you read every line carefully and think about what is required of you. If you find it confusing, consider consulting a bankruptcy attorney.
You will be required to provide the following information:
- How many persons have claimed exemption on your tax return as well as your dependents
- Secondary or elementary school fees for your children below eighteen years
- The Internal Revenue Service National Standard for clothing, food, and healthcare allowance based on the number of your dependents
- The monthly payment for debt secured by your car
- Names of your creditors and secured debt payments
- Identifying details for assets secured by debts
- Public transportation costs
- Total taxes amount
- Involuntary payroll deduction like uniform costs, union dues
- Court-order payment such as child support and alimony
- The amount for the total non-priority unsecured debts
- Continuing charitable contribution
Most of the above items require calculating using the form’s instructions.
Step Four: Determining if Presumption of Abuse Exists
The next step involves calculating disposable income.
For example, if the adjusted monthly wages (line four duplicated to line 38a) was six thousand dollars, and the deduction (line thirty-seven duplicated to line 38b) was five thousand and nine hundred dollars, you will obtain a disposable income of one hundred dollars. Then you will multiply one hundred dollars by sixty to obtain the disposable income for five (5) years of six thousand dollars (you will write this on line 38b).
Because in this case, the disposable income is below seven thousand dollars, you will check the line 39, showing that presumption of abuse does not exist.
Below is how to fill line thirty-nine depending on the results:
In case your disposable income is below seven thousand and seven hundred dollars for the next five (5) years, you can file Chapter 7.
If the disposable income is between seven thousand and seven hundred dollars and twelve thousand eight hundred and fifty dollars, you should calculate the non-priority unsecured debt to confirm if you might qualify.
If the disposable income is above twelve thousand eight hundred and fifty dollars, there is the presumption of abuse. In other words, you cannot file a Chapter 7 case unless you’ve circumstances that validate additional monthly income adjustments or expenses.
What Happens After Filing the Forms?
After filling the above-discussed forms, you can fail or pass the test.
If You Passed the Test
Remember, passing the test is one of the Chapter 7 qualifications.
Moreover, filing Chapter 7 is not always a wise decision simply because you are eligible for it. Make sure you put the entire concept into consideration as well as speak with a lawyer to get the option that fits your situation best.
If You Failed the Means Test
Failing the means test does not imply that you will fail again after some time.
Chapter 13 Could be An Alternative: Chapter 13 Eligibility
If you fail the Chapter 7 means test and still want to go ahead with filing bankruptcy, consider filing Chapter 13.
The advantage of Chapter 13 is that a debtor can keep their assets and repay their creditors in a 3 to 5-year court-approved repayment plan. However, before the bankruptcy court approves the plan, the debtor should prepare bankruptcy paperwork as well as establish that:
The Income Tax Filing is Current
To file a Chapter 13 case, you have to present evidence that you have submitted state and federal income tax returns for four years before the filing date. The court could postpone the proceeding should you require time to be current on the fillings.
Be sure you give the trustees a copy of your transcript of the federal tax return filed in the Internal Revenue Service.
You Should Have Adequate Disposable Income
Additionally, you should prove to the court that you’ll have adequate income after deducting expenses and necessary payments on your secured debts like mortgage or motor vehicle loan to satisfy the repayment obligations. You should also pay the trustee a commission based on the percentage of the payment made in the repayment plan. Your repayment plan should clear certain debts. Otherwise, the bankruptcy court won’t approve the plan and permit you to continue.
You could use the income from the below sources to finance your repayment plan:
- Regular salary and wages
- Self-employment income
- Wages acquired from seasonal employment
- Pension payment
- Commissions obtained from sales
- Strike benefits and unemployment benefits
- Worker’s compensation or disability benefits
- Alimony or child support
- Royalties and rent
- Amount obtained after selling your property
- Public benefits
You can use an income from your working partner even when your spouse hasn’t filed jointly for wages and salary, Social Security benefits, unemployment benefits, self-employment benefits, and bankruptcy.
Your Debts Should Not be Too High
A debtor is eligible to file Chapter 13 if both their unsecured and secured debts are above a certain amount. Usually, debt amounts change after three years.
A secured debt is a debt in which you can lose given assets if you are not current with the payment. Car loans and mortgages are secured debts. Moreover, your debt can be secured in case the lender has brought a notice of claim or lien against the asset.
Unsecured debts, on the other hand, do not give creditors the rights to take any property. Common unsecured debts include legal, credit cards, and medical bills.
A Previous Bankruptcy does Not bar you
If a debtor discharged debt in Chapter 7 within the previous four (4) years or in a Chapter 13 case within the past two years, they don’t qualify until the requisite time elapses.
Businesses aren’t Permitted in a Chapter 13 Case
A business can’t file Chapter 13 in the name of the business. A business should file Chapter 11 when it requires help reorganizing its debts.
While a sole proprietor can’t bring bankruptcy in the business’s name, both the personal and business loans are the sole proprietor’s responsibility. As a result, the loan is a part of the bankruptcy case.
You can file a Chapter 13 case as an individual, even when you own a business. You will include business-related debt, which you’re liable in Chapter 13 case. However, your business will be accountable for that debt.
Find an Experienced Bankruptcy Attorney Near Me
Have you lost your employment and have no means to foot your bills? Are you unable to make ends meet? Are your creditors harassing you? If the answer to one of these questions is “yes,” filing for bankruptcy can be an effective solution to assist you in getting a financial start. Seasoned lawyers at Los Angeles Bankruptcy Attorney can work with you as well as review your paperwork and assist you in making informed decisions. We can also help you determine if you qualify for bankruptcy and if you do, which chapter. To get your questions answered or for more information, contact us today at 424-285-5525.