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Q: I’m really struggling to make ends meet right now and I think bankruptcy might be my only option. What are the requirements to do this?
A: There are several different kinds of bankruptcy, each with different requirements. Chapter 7 and Chapter 13 are the main types of bankruptcy that apply to individuals. The requirements to qualify for Chapter 7 are more strict, since it allows you to discharge most of your debts. All of your assets that are not exempt will be sold to help pay off your debts.
Under Chapter 7, many personal items are exempt. This includes household items under a certain value, jewelry, and life insurance policies, as well as several other items. You can sign a form to keep your house and car (but you will still have your mortgage and/or car loan). With Chapter 13, you keep your assets, but your debt is not completely erased and you must agree to a payment plan. Your debts are not allowed to collect interest, however.
Those who make less than the median income for their family size may qualify for a Chapter 7 bankruptcy, while those who do not will have to file for a Chapter 13. If you meet this requirement and your discretionary income (income minus qualified expenses) is also less than 9,999 per year, and your estimated discretionary income over the next five years is less than 25% of your unsecured debt, you qualify for a Chapter 7. You must not have filed another Chapter 7 in the past eight years, or a Chapter 13 in the past six years.
To qualify for a Chapter 13, your debt must not be over $336,900 in unsecured or $1,010,650 in secured debt (check with a professional to make sure the amounts are up to date when you file), and you must earn enough to make payments on your debts. You cannot have filed for Chapter 13 bankruptcy in the past two years, or Chapter 7 in the past four years. For both types of bankruptcy, you must participate in an approved credit counseling program.