When Americans who are unemployed are faced with reductions in their unemployment checks, they often have to find other ways to manage their household budget. Some will use their savings or cut back on expenses even further, while others will undoubtedly need to file for bankruptcy.
Those who attempt to file bankruptcy may want to file Chapter 7, but they first must qualify for Chapter 7. Otherwise, they may be relegated to having to formulate a repayment plan in Chapter 13.
In this blog, we’ll explain when you may be able to file Chapter 7 and what questions you need to ask to figure out if it’s the best way to eliminate your debt.
If you have additional questions or would like help filing for bankruptcy in Alabama, reach out to the experienced Birmingham bankruptcy lawyers at Nomberg Law Firm.
Top 3 factors to consider when filing Chapter 7 bankruptcy
Chapter 7 is the quickest way to eliminate your debt problems and begin to rebuild credit. In order to take advantage of Chapter 7, there are 3 primary factors to consider.
1: Do you and your spouse make too much money? What is your total household income?
Unless your primary debt stems from a struggling business, in order to qualify for Chapter 7, you must first pass the Means Test. The Means Test considers your total household income and your allowable expenses (based on national and local standards used by the Internal Revenue Service) to determine whether you have enough disposable income to propose a repayment plan to creditors.
If your income is below the median income level for your county/state, then you will qualify. If your income is above the median income, you may still qualify, but you may also need to consider Chapter 13.
Talk with an Alabama bankruptcy lawyer near you to see if you pass the Means Test.
2: Do you stand to lose any assets? How much equity is built up in your house?
If you own a home with a substantial amount of equity or have other assets that could be sold to pay your creditors, you may want to consider filing Chapter 13 or selling those assets and using the money to work out settlements with your creditors.
Most creditors are willing to work with you and will take less than the full balance due in order to settle the debt rather than receive nothing if you file Chapter 7.
3: Have you sold or transferred any property in the last year?
If you have sold or transferred property to anyone in the past year, you will need to disclose the details of the transaction in your bankruptcy petition.
If the person who received your property was related to you or if the consideration received was for less than fair market value, the transfer will be scrutinized by the Chapter 7 trustee and the bankruptcy court.
It is possible that you could jeopardize your ability to receive a discharge because of the transfer, so be sure to discuss these transfers with your bankruptcy lawyer before you decide to file a case.
A Guide to the Automatic Stay in Chapter 7 and 13 Bankruptcies
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FAQs about filing for Chapter 7 bankruptcy
What is the downside to filing Chapter 7?
Perhaps the biggest downside to filing Chapter 7 bankruptcy is that it can stay on your credit report for up to 10 years and may make it harder to qualify for loans or favorable interest rates in the short term.
Additionally, certain debts typically are not discharged (e.g., student loans, recent taxes, and child support), and you may also have to give up non-exempt property.
What income is too high for Chapter 7?
There is no fixed cutoff, but if your income is high enough that you have meaningful disposable income after allowed expenses, you may not qualify. In that case, the court may expect you to repay a portion of your debts through a Chapter 13 plan instead.
Do they monitor your bank account in Chapter 7?
While there is no ongoing monitoring after your case is filed, your accounts are closely examined during the process to ensure everything is accurate and properly disclosed. That will typically include a review of your financial records, including recent bank statements, to verify your income, expenses, and transfers.
Need help filing for Chapter 7 bankruptcy in Alabama?
If debt is weighing you down and you’re unsure what comes next, you don’t have to figure it out on your own. The right legal guidance can help you protect what matters most while taking real steps toward a fresh financial start.
At Nomberg Law Firm, Birmingham bankruptcy attorney Steven D. Altmann has spent more than 25 years helping individuals and business owners navigate bankruptcy with clarity and confidence. His dedication to helping people through the debt relief process has earned top recognitions, including an AV rating from Martindale-Hubbell and honors from Super Lawyers and Birmingham Magazine for his work in bankruptcy law.
If you’re thinking about filing Chapter 7 in Alabama, reach out to our experienced Birmingham bankruptcy attorney today to discuss your options.
We are a Federal Debt Relief Agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.