In 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act was passed that changed bankruptcy filing requirements. This means that there may be certain changes that need to be checked before you decide to file for bankruptcy. Being informed and prepared with the new bankruptcy requirements will make your filing process hassle free.
While chapter 7 and chapter 13 are mostly used by individuals for filing personal bankruptcy, chapter 11 and chapter 12 are for business & farmers respectively. In general there are certain key requirements for bankruptcy of each of these chapters that need to be fulfilled for completion of your petition.
Following are the requirements chapter wise:
1. Chapter 7 bankruptcy requirements: In chapter 7 the assets of the individual come under the courts’ possession and are liquidated to pay off the debts. The debts are limited to unsecured loans and debts on credit cards.
a) Your complete account of your total income and total expenses will have to be submitted to the court; which is called the Means Test. Under the new rules, your monthly income will be compared against the median income of your state. If the income is less than the median, you can file for chapter 7. However, if the court finds that your debts are payable from your regular income and that you needn’t go for asset liquidation, your bankruptcy will be converted from chapter 7 to chapter 13.
b) Another point to note is that if you had obtained a discharge of debts in chapter 7 in a bankruptcy case in last eight years or chapter 13 in last six years, then you cannot file for chapter 7.
c) If you previously filed for chapter 7 or chapter 13 and the case was dismissed within the past 180 days, you cannot file for chapter 7. This usually occurs either because of court violation, fraudulent filing, abuse of bankruptcy system or if a dismissal was requested after creditor asking for relief from automatic stay.
d) If the court finds that you have cheated your creditors or tried to conceal the assets, your case can be dismissed. Some of these fraudulent acts are as below:
- Concealing assets from creditors and court by secretly handing them to friends or relatives.
- False forging a credit application.
- Concealing assets or property from spouse during a divorce proceeding.
- Spending and earning debts for luxury items despite being broke.
2. Chapter 13 bankruptcy requirements: In chapter 13, an individual should have a sufficient salary to carry out a scheduled payment over a period of time. Again you need to submit your total income and total expense account to the court. If your income well exceeds your expense and the debts (both secured and unsecured) are well within the specified limits, you will be allowed to submit a plan for repayment of debts over a period of five years. Your income source can fall in into the following: Regular wages or salary, social security benefits, income from self-employment, pension payments, child support or alimony you receive, wages from seasonal work, proceeds from selling property, commissions from sales or other work, disability or workers’ compensation benefits, unemployment benefits, strike benefits, public benefits (welfare payments), royalties and rents.
If you own a business, but want to file for chapter 13, you do so as an individual and should be liable for business related debts. However stockbrokers and commodity brokers cannot apply for this. If your secured/unsecured debts exceed a certain amount (as per prevailing laws), you do not qualify to file for chapter 13. Failing to produce tax returns four years prior to filing bankruptcy can also cause dismissal of your case.
3. Chapter 11 bankruptcy requirements: The means test for chapter 11 involves completing a worksheet called U.S. Bankruptcy form 22B that compares the income with the outstanding liabilities. This determines whether a repayment plan can be charted out. The petition needs to be filled completely and no detail should be left blank. All the creditors should be listed along with the amounts owed to each.
4. Chapter 12 bankruptcy requirements: Chapter 12 seeks to provide & help family farm pay off their debts owing to a bad harvest. A repayment and reorganization plan is made to pay off debts in three to five years. It is prudent to avail services of an experienced attorney for filing such cases as they are generally quite complex.