Federal Law Allows Financially Overwhelmed People To File For Bankruptcy Protection

Written by Adam Peck Category: Nursing Homes January 23rd, 2013 3 min read

While federal law allows financially overwhelmed people to pursue debt relief through bankruptcy, such legal debt forgiveness is not automatic, according to the book “How to File for Chapter 7 Bankruptcy.” Not everyone can qualify for permanent forgiveness of most debts through Chapter 7 bankruptcy, and some must instead repay part of their debts through a court-supervised Chapter 13 plan. Learning the basic qualifications for bankruptcy is essential to your success during this sometimes difficult legal process.

Credit Counseling
Before 2005, credit counseling was not required to file bankruptcy, according to the Federal Trade Commission. Today, however, all debtors pursuing any type of personal bankruptcy must complete a credit counseling session approved by the U.S. Trustee Program; otherwise, the debtor’s local bankruptcy court clerks will not accept the initial filing paperwork. Typical sessions range from about 60 to 90 minutes. You also must complete this requirement no more than 180 days before filing bankruptcy and attach a copy of the completion certificate to your bankruptcy petition.

Income Tax Returns
To file bankruptcy, you must have filed your last three income tax returns even if you could not pay any resulting debts, according to “How to File for Chapter 7 Bankruptcy.” If you did not file the tax returns and were required to do so, you must complete this step with the Internal Revenue Service before you can declare bankruptcy. Also, keep in mind that only tax debts more than three years old can be included in bankruptcy; if you filed your older tax returns late, you may not qualify for partial or complete relief of resulting debts. In addition, some Chapter 13 filers must pledge all or part of their tax refunds toward creditor repayment; this only applies while the debtor is actively repaying debts through the court-supervised plan.

Income Qualifications
Since 2005 bankruptcy reform, qualifying for Chapter 7 debt relief has become more difficult, according to the Federal Trade Commission. If you make less than your state’s median income, you automatically qualify for Chapter 7 debt relief. Those who make more money must run their financial figures through a federal “means test.” Basically, you calculate your income and essential expenses to determine whether you can really repay any of your debts; if you have disposable income, then likely you must repay some of your obligations through Chapter 13 bankruptcy. It is also important to remember that even if you qualify for Chapter 7, you will likely lose assets such as your home and savings accounts; Chapter 13 filers are often allowed to keep reasonable assets since they are repaying some of their financial commitments.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.