What Chapter Of Bankruptcy Is Right For Me?
This is one of the more difficult questions to answer when bankruptcy may be a viable solution.
The first step in the analysis is the means test, which calculates the debtor’s gross annual income based on a projection using the past six months of income. We then compare the debtor’s gross annual income to the median income as determined by the IRS based upon how many people live in the home. If the annual income is less than median income, the debtor qualifies for Chapter 7. If the income is more than median income, the debtor can then deduct a combination of IRS and actual expenses to determine disposable income. If disposable income is negative or break-even, the debtor can still file Chapter 7. If disposable income is positive, the debtor might have to file Chapter 13.
Next, the debtor must calculate actual income – income less expenses. Again, if the debtor is negative or break-even at the end of the month, the debtor can file Chapter 7. If the debtor is positive, then he might have to file Chapter 13.
Finally, the debtor needs to review any assets that have high dollar value, such as jewelry, businesses, cars that are paid off, personal injury lawsuits or inheritances, investment and vacation homes. Some assets of high value (IRA, 401k) are exempt and these can be ignored for this part of the analysis. In Florida, the debtor will normally be able to exempt $1,000 of the value of a car, and $1,000 of anything else (or $5,000 if the debtor rents rather than owns his home). Therefore, a debtor with a $4,000 car and a business worth $10,000 will, at best, be able to protect $6,000 in value, leaving $8,000 to be liquidated and paid to unsecured creditors. If the debtor is able to pay $8,000 to the trustee, Chapter 7 is an option. If the debtor is unable to pay a lump sum of $8,000 to the trustee then Chapter 13 is the better option.
Bankruptcy can be a great tool, if used correctly. For more information on bankruptcy, liquidation or reorganization, or to schedule a free initial consultation to discuss your options, please contact our firm at: 727-261-0224 or email me at shawn@yesnerlaw.com.
Yesner Law, P.L. is a Tampa-based boutique real estate and consumer law firm that helps clients eliminate debt by providing options, so they can live the lifestyle of their dreams. We assist clients with Chapter 7, Chapter 13, bankruptcy, liquidation, reorganization, foreclosure defense, and debt settlement in Tampa, Westchase, Oldsmar, Clearwater, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.
