Do I Qualify For Bankruptcy Protection?

The good news is that overall, most people we have seen qualify for one or both.  The big categories of qualification are how long since a previous bankruptcy filing, how much debt someone has, and how much income someone has.  

Previous Filings

First, the easiest.  If you have never filed a case before then this one does not pertain.  If you have filed a case anywhere before, and are looking to file a new one in North Carolina, then to get a Discharge in your new case it must be X number of years since the beginning of your old case.  If your old case was a Chapter 7 and the new one would be a Chapter 7 also then it would be 8 years.  If the old one was a 13 and the new a 7, then 6 years.  If the old one was a Chapter 7 and the new one a 13, then 4 years.  If both are 13’s then just 2 years were required.

• 13 then 13 = 2 years
• 7 then 13 = 4 years
• 13 then 7 = 6 years
• 7 then 7 = 8 years

Debt Limits

The second qualification is for Chapter 13 only.  Chapter 7’s have no limitations on the amount of debt someone can have in a case.  Note, it is how much debt you have, and most of the time that is not exactly the amount you Discharge, or get rid of.  For Chapter 13 the debt limits are $419,275 for Unsecured debt and $1,257,850 for Secured debt.  These amounts adjust every few years depending on inflation.  Unsecured debt is typically things like credit cards, personal loans, medical bills, and student loans.  Secured debts have some piece of property attached as collateral, like a car loan or mortgage.

Means Test

The last one is by far the most complicated and explanations could fill an entire book.  The basic thing is that whether or not you can file for bankruptcy may be based on your current income.  If you, and your household, have too much income then either you can’t file at all, which is how it is in a Chapter 7.  Or in a Chapter 13, too high of income requires a higher payout to your unsecured creditors.

Household Size

The size of your household is the total of everyone in your family unit living together.  For example, if there were two spouses, two children, and an elderly parent of one spouse, then perhaps the household size might be five.  The numbers used to compare the household income to are based on averages for your area.  This is broken down by State and even County.  This is because there is a significant difference in average income between Wake County and New York City.  As of the time of this writing, for a County in North Carolina the Median Income...or average...may be around $96,505 per year.  If the household in the example above has a total annual income below that number then they should be considered, “below median” and may have the option of chapter 7 in addition to chapter 13.  If they were above that number then part 2 of the means test has to be calculated.

Part 2 for Above Median

The second part is a bunch more math where the income is input and then the household gets deductions.  It might seem similar to how your tax forms look with income at the top and deductions down the pages to determine how much you owe.  Here, the end result is trying to determine if you have, or should have, money left over after all of your allowed expenses.  The leftover money is considered to be extra, or Disposable Monthly Income, and used to pay some or all of your unsecured debts.  If at the end of the second part the number is very low or negative, then Chapter 7 remains an option.  For Chapter 13, a negative number is a pass, and any positive number is dollar-for-dollar the money to be added to the monthly Plan payment.