Excessive debt makes many people file for bankruptcy in a New Jersey federal courtroom. Some may consider their options and discover that they fail to meet the requirements for bankruptcy. Ultimately, a debtor must meet specific criteria for the court to accept a bankruptcy petition.
Bankruptcy requirements
A person with a significant debt may struggle to pay the amount owed, but struggling does not automatically equate to meeting bankruptcy’s requirements. A person with a net worth of $45,000 may not want to direct their savings to address $35,000 in debt. However, the person is not bankrupt. And the individual may likely have several potential options to pay the debt, including refinancing.
In general, someone’s debts must exceed their assets to file for bankruptcy, and the person would find it mostly impossible to deal with the situation without legal bankruptcy protections. Further requirements exist, including time durations someone must wait between a previous bankruptcy filing and a new one. Further rules exist to qualify a debtor for a specific bankruptcy filing. Chapter 7 and Chapter 13 have unique requirements, with Chapter 7 having more stringent rules.
Chapters 7 and 13
Chapter 7 involves liquidating assets to pay creditors and discharging eligible debts. Chapter 13 entails completing a payment plan on reorganized debts. Although someone may wish to file for Chapter 7, they might not pass the means test required for Chapter 7 filings. Persons whose income is less than the state’s median level may qualify for Chapter 7. Those who don’t pass the means test might file Chapter 13.
Chapter 13 payment plans are eligible for those earning sufficient income to cover their monthly plan payments. Debtors may propose a plan to the court, and the court could approve or reject the proposal. Persons unable to make their payments could convert to Chapter 7 if they qualify.