Is There a Limit to How Much Debt I Can Wipe Out in a Chapter 7 Bankruptcy?
Every bankruptcy situation is different. Many of our clients come into the process with enormous amounts of debt while others do not. Clients often ask us, is there a limit as to how much debt I can wipe out in a Chapter 7 bankruptcy?
Understanding Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as a straight bankruptcy or liquidation. The bankruptcy trustee accumulates all of the debtor’s property not otherwise exempt by a bankruptcy exemption and liquidates it, paying off the debts that qualify and discharging these debts. Florida has generous exemption laws. Generally, those who file chapter 7 keep all their property.The individual then essentially has a “clean slate” when it comes to his or her debts or liabilities.
Chapter 7 Filing Requirements
Chapter 7 bankruptcy is open to anyone with any amount of debt and does not have a minimum or maximum amount of debt allowed. Individuals who file for bankruptcy come from all walks of life. People from every profession, including doctors, lawyers, teachers, firemen and policemen- many of them filing for the same reason- they have fallen behind on their bills due to job loss, illness or divorce. These life circumstances can happen without warning, but can happen to anyone of us.
Qualifications do exist when it comes to whether an individual can file a Chapter 7 bankruptcy, which we explain in more detail below.
What Bankruptcy Has a Debt Limit?
While Chapter 7 bankruptcy does not have a debt limit, Chapter 13 bankruptcy does. During the Chapter 13 bankruptcy process, you will work with the bankruptcy trustee to create a repayment plan lasting anywhere from between three- to five-years, allowing you to pay back most or all of your debt. The law does set a limit for how much secured debt and unsecured debt an individual can have. These numbers change periodically to account for inflation.
Income Qualifications for Chapter 7 Bankruptcy
Florida bankruptcy filers will find that income could play more of a part in whether they can proceed with a Chapter 7 bankruptcy filing. In fact, when it comes to roadblocks in the way of someone proceeding with Chapter 7, the question is often whether the individual has too much income, not too much debt.
The State of Florida requires individuals filing for Chapter 7 Bankruptcy pass what is called the Means Test. This test is meant to weed out individuals who are trying to pay their debts through a Chapter 7 bankruptcy, but actually have the “means” or income to pay these debts on their own or through a different type of bankruptcy. The Means Test deducts certain monthly expenses from the your monthly income, meaning the person’s average income over the most recent six calendar months before filing for bankruptcy. Once these deductions are made, the individual is left with what is considered his or her “disposable income.” The higher someone’s disposable income, the less likely he or she will be able to file for Chapter 7 bankruptcy. That brings the question of what the person’s options are if he or she is above the “means” determination. Not all hope is lost. This typically means the individual will likely need to file a Chapter 13 bankruptcy, instead.
At The Benenati Law Firm, we have helped thousands of individuals and families eliminate their debt and get a fresh start financially. If you have any questions on this topic or are struggling with overwhelming debt, call Orlando bankruptcy attorney, Walter Benenati at 407-777-7777. Ask Walter how you can restart your life. The day you hire our firm, we will contact your creditors to stop the harassment and collection calls. We make our hours convenient for our clients and offer free consultations on Saturdays (9:00 a.m. – 3:00 p.m.) and throughout the week until 5:00 p.m. If you are in a financial crisis and considering filing for bankruptcy, contact an experienced Orlando bankruptcy attorney who can advise you of all of your options.