How Much Do I Have to Owe in Order to Qualify for Bankruptcy

At least twice a week I get a phone call that asks the question “How much do I have to owe to qualify for bankruptcy”.  It’s a fair question, but not the right one.  The real question is about your ability to pay.  If you are unemployed, even a minimal payment can lead to ruin.  Sometimes, even if you can make the minimum credit card payment, you may be better off filing bankruptcy.

One of our clients left a big impression.  He had an average, middle management man with a house, a wife and an 8-year old son, when in the space of a little more than a year, he lost his job and his wife divorced him.  He found a new job that paid about 31k a year, but was now forced to rent an apartment and he was unable to do anything except about $300 in minimal payments to the $8,000 he owed in credit cards.  He decided to do a chapter 7 bankruptcy with us, because those $300 were the difference between a tiny studio apartment and just staring at TV with his son and a one bedroom apartment and being able to occasionally take his son out to a Marlins game or the Miami Zoo. 

Each person or family is different in their financial circumstances.  For some, the loss of a job or loss of a 2-person household income has left them stranded in dire financial straits, forcing them to overextend their credit just to keep their head about water. 

Bankruptcy, while certainly not an easy process, if often the best option for individuals and families who face job loss, divorce or other significant, game-changing circumstances.  It provides relief from creditors and can help get your family back on its feet a lot faster than other options.  To be sure which choice is right for you, consult a qualified bankruptcyattorney. 

Foreclosure and a Home’s Sale Date—Can Bankruptcy Stop It?

If a lender has placed a home in foreclosure and has already set a sale date for the property, all hope is not lost—it is still possible to save the home by filing for Chapter 13 bankruptcy.  Filing Chapter 13 bankruptcy immediately stops the foreclosure process and allows the homeowner some time to catch up on payments that have gotten behind. 

This means that even if you have already received a notice of foreclosure and a sale date for your home, you still have time and available legal resources to stop the process.  In Chapter 13, your lender is prohibited by the bankruptcy court from continuing any collection efforts and an automatic stay is placed on your assets, including your home.  This automatic stay is not permanent but it will at least give you some time to figure out if you want to fight to keep your home and catch up on payments through the Chapter 13 repayment plan.  

However, just because you can stall the foreclosure process through Chapter 13 bankruptcy doesn't mean this is a wise financial decision.  Since filing bankruptcy doesn't lower your mortgage premiums or the amount you owe for your home, there is still the consideration of “can I afford this home?”  If your home costs more than you can afford, and the mortgage is greater than 30% of your monthly net income, then you should consider the fact that the home might be more than you can reasonably afford—with or without a bankruptcy. 

Filing for bankruptcy has allowed many homeowners to stay in their homes, despite the fact that the lender has already begun the foreclosure process and initiated a sale date for the home.  You can discuss your options with our bankruptcy attorneys and we will be able to help you determine the best course of action.  

Common Bankruptcy Myths You Should Know Before Filing

There is a lot of misinformation about bankruptcy floating around, and debunking these myths can help clear the air and make your decision one that is based on the facts rather than fallacies. 

Myth #1: The process of filing bankruptcy is as simple as filling out a few forms.

There is nothing about the bankruptcy process that is simple.  It is a complicated, expensive and often long legal process.  While bankruptcy is certainly a process that can help consumers who have too much debt, it is also a very serious legal endeavor that has potential for future litigation.  All bankruptcy forms are filed in Federal court and are looked over carefully by a trustee whose job is to liquidate your assets and pay your creditors, if possible.  Even if you claim exemptions, your bankruptcy trustee has the power to object to the assets you use for these exemptions. 

Myth #2: I will lose all of my property if I file for bankruptcy.

If you file a chapter 7 bankruptcy, your non-exempt property will be subject to being sold and liquidated to pay your creditors.   However, your exempted property is yours to keep and cannot be liquidated in the bankruptcy process.  When you file bankruptcy, your bankruptcy trustee will oversee your estate and make a decision regarding the property that is non-exempt.  In many cases, the cost of liquidating non-exempt assets is more than their worth, so it might be the case that you get to keep everything you currently own.  Many people who have filed for bankruptcy haven’t lost a single piece of property or asset in doing so.   The amount and type of exemptions vary depending on whether you own your own home, are married and other factors.  Consult a qualified bankruptcy attorney for your specific exemptions, but ninety percent of our clients get their fresh start while keeping their home and maintaining their vehicle.

Myth #3: I can never qualify for credit again.

It is often the case that as soon as a bankruptcy is filed, debtors are swamped with credit offers.  This is surprising to some but reveals a truth about the myth that once you file bankruptcy, you can’t qualify for credit again—it’s simply a false statement.  While a bankruptcy can stay on your credit for 10 years if you file a Chapter 7, the ability to borrow money is largely based on your debt-to-income ratio.  If a bankruptcy reduces or eliminates your debt, then it’s even possible that your FICO score can be higher after a bankruptcy than it was before it.  

My home is in foreclosure and the lender has informed me of the sale date. Can I file bankruptcy to stop it from happening?

Will a bankruptcy require me to sell or get rid of my car and home?

What Happens to Your Property in a Bankruptcy?

Bankruptcy is an opportunity to get a financial fresh start but it doesn’t necessarily mean that you have to start completely from scratch with no possessions if you file.  If you file for bankruptcy, you can rest assured that regardless of how much you might owe, you will be able to keep some of your property after filing.  This is done through a process called “exemptions,” and although states vary on their rules regarding exemptions, all states have a certain amount of property that you can keep after filing bankruptcy. 

There are actually two different sets of exemptions—one is the national bankruptcy code exemptions (as stated in Section 522 of the Bankruptcy Code) and the other is the list of state exemptions that are specific to your state.  Some states allow debtors filing bankruptcy to choose between the state exemptions and the Federal ones, while other states completed opted out of the Federal exemptions and solely offer their own state exemptions. 

Your bankruptcy attorney will be able to assist you with determining the amount of exemptions that are allowed by your state, and these exemptions are usually expressed in dollar amounts.  When determining the amount of money an object or property is worth, the equity is used.  For example, if a state offers $10,000 in exemptions for a debtor who is filing bankruptcy, that debtor’s assets would receive a value that is based on their equity or what would that asset would sell for if it were listed on the open market in its current condition.  (Translation:  That $2,000 TV you bought two years ago?  Now you can only get $300 on craigslist?  For bankruptcy exemption purposes, it’s worth $300.

It’s also frequently the case that a debtor will get to retain property that is valued at more than the exemption that is allowed, simply because the cost that would be involved in the trustee taking possession of the asset, selling it and distributing it to creditors would be more than the asset is worth.  The amount and type of exemptions vary depending on whether you own your own home, are married and other factors.  Consult a qualified bankruptcy attorney for your specific exemptions, but ninety percent of our clients get their fresh start while keeping their home and maintaining their vehicle.