Bankruptcy’s “No Man’s Land”
Not Qualifying for Either a Chapter 7 or Chapter 13 Bankruptcy – Contact Us, the Utah Bankruptcy Attorney, to Find Out More
Every now and then we meet with a potential client that is unable to file bankruptcy because he or she does not qualify for either a chapter 7 or a chapter 13 bankruptcy. We call this the bankruptcy no man’s land. Such might be the case when a debtor is above the means test and therefore does not qualify for a chapter 7, but cannot afford to make the necessary monthly payments in a chapter 13, usually due to unemployment, cut-backs at work, or excessive secured debt. Don’t worry, it’s not the end of the world and if you fall into one of these categories, there is still hope.
How Long Will I Remain in the No Man’s Land?
In a case wherein the debtor has lost his or her job or is receiving less hours, sometimes by simply waiting a few months to file the debtor will be eligible for a chapter 7 bankruptcy. When determining whether a debtor qualifies for a chapter 7 the court looks at the previous 6 months of income, and then doubles that amount. If the resulting figure is above the IRS standard of living for a person in that debtor’s position, then the debtor may be forced to file a chapter 13 instead of a chapter 7 bankruptcy. Therefore, if the debtor’s income over the previous 6 months is too high to qualify for a chapter 7, by waiting a few months the debtor may be able to get below the means test by taking his or her decreased income into account.
In the case wherein the debtor has a an income that exceeds the means test, but has a high expense that results in the debtor being unable to make monthly payments in a chapter 13 (such as a high house payment), often the only option is to cut back on those expenses, even if that means moving to a different house or going without something for a while. This isn’t what most people want to hear, but the State has a strong interest in ensuring that a debtor is doing everything he or she can to pay back the debtor’s creditors. The courts generally will not allow a debtor to have an excessive and unnecessary payment while at the same time leaving his or her creditors out to dry.
Questions About Bankruptcy Qualification?
Give us a call and one of our experienced Utah Bankruptcy Lawyers will be happy to answer your questions. Come in for a free consultation as well. All you need to do is contact us at 801.413.1753.