When a Californian is immersed in financial trouble and would like to consider ways to get back on stronger footing, bankruptcy is a viable alternative. However, there are many issues that go into which chapter to use. The most common chapters for people with consumer debt are Chapter 7 and Chapter 13. Chapter 7 is a basic discharge and Chapter 13 is for people who are considered "wage earners." With Chapter 13, there will be a payment plan over three or five years to repay some of the debts. For those who would prefer to simply have a Chapter 7 discharge, there are some important points to remember.
People who are seeking to save a home from foreclosure are better-served to try Chapter 13. A Chapter 7 filing is in jeopardy of dismissal if the court finds that the debts are primarily consumer debts and not business debts. The dismissal will come about if it is found that granting the discharge is an abuse of Chapter 7. The monthly income will be important in the case.
For a debtor who has a monthly income that is more than the median in the state, there will be a means test. This will be a determination to decide if the Chapter 7 is abusive. There will be a presumption of abuse if the debtor's accumulation of monthly income for five years, with some allowable expenses, goes beyond $12,850 or 25 percent of the nonpriority unsecured debt if it is a minimum of $7,700. A presumption of abuse can be rebutted by the debtor if special circumstances are shown to justify the expenses or adjustments to the income he or she receives per month. If the debtor cannot overcome this presumption, the case will be converted to Chapter 13 if the debtor approves. Otherwise it will be dismissed.
Filing for Chapter 7 or Chapter 13 bankruptcy is beneficial, but there is nuance to the process that people should understand. Since the financial struggles can be overwhelming and leave a person emotionally drained, it is easy to make mistakes with a case. Contacting a lawyer who is experienced in the entire process can be helpful in filing for bankruptcy and selecting the right chapter for the individual needs.
Source: uscourts.gov, "Chapter 7 -- Bankruptcy Basics -- Alternatives to Chapter 7," accessed on Aug. 28, 2017