When I meet with a new client, I always try to find a way to fit that client into Chapter 7 bankruptcy. I like Chapter 7 because it typically lasts no more than five or six months and, when it works properly, you end up completely debt free. I have represented debtors who have been burdended with $75,000, $100,000 even $200,000 of unsecured debt – and all that debt disappears in Chapter 7.
Unfortunately, the 2005 changes to the bankruptcy laws have dramatically tightened the qualifications for Chapter 7. Chapter 7 remains available, primarily for families with a modest household income. For example, I would hesitate to file a Chapter for a family of four with a $70,000 or higher household income, or an individual with a $45,000 or higher gross income.
A stated purpose of the new law is to drive more people into Chapter 13. However, not everybody will qualify for Chapter 13. One of the reasons you may not qualify for Chapter 13 is your total debt load.
Currently, you can only file Chapter 13 if your total unsecured debt is less than $307,625 and/or your secured debt is less than $922,975. These debt ceilings may seem very high, but I have seen several situations where a potential client was disqualified because of medical debt (unsecured), co-signed obligations for multiple homes (secured debt), judgments for co-signed debts (judgments are considered secured debts).
On April 1, 2007, the debt ceiling for Chapter 13 will increase to $336,900 for unsecured debts and $1,010,650 for secured debts. So, if you have been told previously that your debt totals were too high for Chapter 13, take another look.
I also find it interesting that the Bankruptcy Code recognizes that consumer debt can easily exceed $1.3 million. Hardworking people can find themselves in huge amounts of debt quickly and without a lot of warning. If you begin to sense that you have lost or are losing control of your debt, seek legal help sooner rather than later.
[tags] Chapter 13 bankruptcy, Chapter 7 bankruptcy, debt ceilings for bankruptcy, Chapter 7 vs. Chapter 13 [/tags]