When people come in to talk to me during their free consultation, one question I get from time to time is whether the bankruptcy court will allow them to file bankruptcy. To me the question isn’t whether they can file bankruptcy, but which chapter under the bankruptcy code can they file.
One of the main things that we talk about with potential clients during their initial consultation is the differences between Chapter 7 and Chapter 13 bankruptcy, and which chapter would be the better option for them. There are clear differences between those two options that sometimes rest solely on how much the potential client’s household income is. If he or she is significantly over the median income for their household size, then Chapter 13 is the likely option. That means they’ll have to repay a certain amount of their debt up to five years.
But finding out how much their household income is doesn’t end the conversation. Another big question is how much debt they owe. While the Bankruptcy Code limits who can file Chapter 7 by their income, the Code also limits who can file Chapter 13 by their debt amount.
Section 109(e) of the bankruptcy code states:
Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525, or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts that aggregate less than $383,175 and noncontingent, liquidated, secured debts of less than $1,149,525may be a debtor under chapter 13 of this title.
What this means is that filers with more than $383,175 in noncontingent, liquidated, unsecured debt and $1,149,525 in noncontingent, liquidated, secured debt can file Chapter 13 bankruptcy. Noncontingent, liquidated debts usually result from a lawsuit or because of a contract. An experienced bankruptcy lawyer can help determine whether your debts fall into this category.
The question then becomes, what are the potential client’s options at this point? It depends. They could file Chapter 13 and argue that their debts are not noncontingent or liquidated. Chapter 7 may be an option, even if their income is above the Chapter 7 income limits, if their debt arise from non-consumer sources, such as business debts or taxes. Finally, Chapter 11 may be their best option. Chapter 11 may be a better option than Chapter 7 if the filer has any assets that wouldn’t be protected in Chapter 7.
The bottom line is that deciding whether to file bankruptcy, and which chapter, is not a black or white decision. It requires a thoughtful analysis.
Our consultations are free and require no obligation. Our goal is to provide you the best information you can get to decide if bankruptcy is your best option, whether it’s Chapter 7 or Chapter 13. You can schedule an appointment with an experienced bankruptcy attorney by calling 303.331.3403 or by using our online scheduling system.