Once you have decided that a fresh financial start is just what you need to get you back on track, your next decision will likely be to determine whether you can file for consumer bankruptcy under Chapters 7 or 13.
A primary thing to understand about the difference between filing your case under Chapters 7 and 13 is that one is means-tested (Chapter 7) and the other is not (Chapter 13). Thus, only consumers who meet the income and resource means test qualifications can utilize Chapter 7 to regain control of their finances.
Is the filing based solely on income?
Mostly, yes (although Social Security income is protected). However, Chapter 7 is a liquidation process where nonexempt assets can be sold to pay off a filer’s debts to their creditors. As such, any valuable property that is deemed to be a nonexempt asset is subject to seizure and sale.
Below are the income sources subject to means testing when filing Chapter 7 bankruptcy:
- Salary and wages
- Self-employment income
- Alimony/child support payments
- Income from investments, e.g., interest, capital gains, dividends
- Distributions from retirement accounts and pensions
- Income generated from rental properties
- Unemployment benefits
Failing to report all income streams can result in your discharge of debts being denied.
Courts can go back six months
If you think that you can just get rid of assets that would push you over the threshold for filing Chapter 7, that would be a major mistake that could result in criminal charges filed against you. It is far better to file under Chapter 13 (or convert your filing) than to try to file under Chapter 7 if you don’t qualify.
