How Much Debt is Too Much For Chapter 7 Bankruptcy?

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How Much Debt is Too Much For Chapter 7 Bankruptcy?

Debt does not need any reason to pile up. One missed payment followed by another and the debt just keeps piling without your knowledge. Having too much debt is a scary thing, but sometimes, one might just land there without choice. Bankruptcy, however, can help you kickstart your life once more instead of facing undue harassment from the lenders and dissolving all your assets, it is one of the better options. Most people use bankruptcy to start fresh amongst a pile of debt that probably would not be released even after several years of hardship. How much debt will lead to bankruptcy? Should you apply for bankruptcy or not? Get all your questions answered at Recovery Law Group.

Where does the debt limit apply?

The debt has to be limited for Chapter 13 type of bankruptcy. Chapter 13 bankruptcy is a system or a code that brings together, the legal system (in the form of the bankruptcy trustee and court) and affected parties (you and the lenders) to an agreement. This agreement usually is a payment plan that lasts for about 3-5 years depending on various factors like income threshold, type of debts, etc. Since a payment plan has to be implemented, there is a limit of different types of debt (secured and unsecured) below which the debtors could be eligible to file under Chapter 13 bankruptcy. There is no limit for Chapter 7 bankruptcy and hence, if you have too much debt and do not qualify for Chapter 13, Chapter 7 is an obvious choice.

What counts in a Chapter 7 bankruptcy?

As understood recently, the amount of debt is not an issue for Chapter 7 bankruptcy filing but there are some eligibility criterions for filing the bankruptcy. The income holds the key in the case of Chapter 7 bankruptcy. If the filer has too much income that could relate to excess disposable income with some standard deductions for common expenses, the filer would most likely not qualify for Chapter 7 system code. The income to qualify for this section code should be lower than the average income of a family/person in California. This is also referred to as a ‘means’ test. This rule was passed by the Congress in the year 2005 as the credit card companies rallied for it due to the release of unsecured debts quite easily under Chapter 7 bankruptcy code.

Switching from one bankruptcy code to another?

It is important to select the right Chapter to file the bankruptcy. A qualified attorney is just a call away, who can guide you with which Chapter would be best based on your specific scenarios. Reach out to +1 888-297-6203 to select the right chapter in the first place. However, if you feel switching can help you gain a better position or save you a few dollars, you need to qualify for both Chapter 7 and Chapter 13 to do so. The most common reasons for switching or converting can be listed as follows-

  • The process of bankruptcy could last up to 5 years in Chapter 13 while it can be almost immediate depending on the type of non-exempt assets in the case of Chapter 7. Time can be a factor why someone would like to switch from Chapter 13 to Chapter 7
  • Mortgage or home loan can face foreclosure under Chapter 7, and you do not have so authority or control over the home However, under Chapter 13, foreclosure is more controllable and shall not be subject to foreclosure until and unless the payments are being made as per the payment plan
  • If you did not realize you might end up losing some of your necessary assets like car, home, etc., you might want to safeguard it by switching to Chapter 13 from Chapter 7
  • If your job is not consistent, or you fall ill too often and are on sick leave often, it might be difficult to payout the monthly payments as per Chapter 13. Loss of job and similar factors shall make you incline towards Chapter 7 a bit more
  • Finally, you might end up paying back a good chunk of debts in full under Chapter 13 which is good but not ideal after filing for bankruptcy. This might also want you to consider for Chapter 7 switching

Switching fee and procedure

Switching from Chapter 7 to Chapter 13 is usually an easy process. There is no conversion or switching fee. Also, there is no pre-requisite for any permission; but a motion or referendum has to be passed in the court to notify about the switch. To switch from Chapter 13 to Chapter 7 there is a fee of $25. Conversion is only possible if there hasn’t been any release of debt under Chapter 7 in the recent 8 years. A motion has to be passed for Chapter 13 to Chapter 7 switch also. For all this to happen, one has to be eligible for Chapter 7 as well as Chapter 13 guidelines. In case of ineligibility to switch and ineligibility to keep up with the existing Chapter program, a filer can request the court to dismiss the case. This will release the automatic stay shelter on you, and you shall be exposed to the lender’s ways of extracting their debt from you. Professional solutions and guidance are just a call away. Manage your bankruptcy in the best way possible by reaching out to +1 888-297-6203 now!