You do have a right to file for bankruptcy, however, your circumstances must first be assessed to see if you can qualify and under which chapter. You can determine your eligibility on your own, but because of the different laws and rules involved, you should contact a bankruptcy attorney to assess your bankruptcy eligibility.
An individual can file under either a Chapter 7 or a Chapter 13. A Chapter 7 is generally more desirable since you can discharge your unsecured debt and either reaffirm your secured debt or give back any secured collateral while retaining most if not all of your property.
The Chapter 7 Bankruptcy Means Test
Anyone seeking bankruptcy protection under Chapter 7 must pass a means test to determine their bankruptcy eligibility. This chapter is intended to help consumers who do not have much in disposable income.
The means test is used by deducting specific monthly expenses from your monthly income, or your average income over the past six months before you file. Your state has a median income amount, which varies among the states. If you are earning less than the median income, you are eligible for Chapter 7.
Should your income exceed your state’s median income, you could still file under Chapter 7 but you have to determine if you have enough disposable income to pay off at least some of your unsecured debt such as credit cards or medical expenses. Your county or geographic region may use different allowed amounts for basic necessities like housing and transportation. Because these amounts change, you should speak to a bankruptcy attorney in your area for advice and possible representation.
If your disposable income is too high after using this method, you have failed the means test and must reassess your bankruptcy eligibility.
Chapter 13 Filing
Even if you do fail the means test and cannot file under Chapter 7, most consumers can still file for bankruptcy protection under Chapter 13, which is also called a wage earner’s plan or debt reorganization. You will have to come up with a plan to repay your secured creditors, at least, over a 3 or 5 year period that must be approved and confirmed. Chapter 13 plans are typically used by homeowners facing foreclosure who may be able to keep their homes by including their arrearages in their repayment plan while continuing their monthly mortgage payments. It is also an option for debtors who stand to lose considerable nonexempt assets under a Chapter 7.
Bankruptcy can present complex issues depending on your particular circumstances. By using an attorney to determine your bankruptcy eligibility and your needs, you can be sure of the proper bankruptcy chapter under which to file.