What Factors Into a Bankruptcy Decision?
Posted on: 4 March 2020
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Bankruptcy proceedings are intended to help people with significant financial problems get their situations under control. Consequently, the court looks at a lot of factors in deciding whether to grant a petition for relief. Before you meet with a bankruptcy law attorney, learning a bit about these standards can help you make better use of your time when you get to your consultation.
Two Kinds of Bankruptcies
Nearly all filings fall into one of two categories. These are liquidations and restructurings. All liquidations, where most of the petitioner's assets will be sold to pay off creditors before wiping any remaining unpaid debts out, fall under Chapter 7. Restructuring, where the petitioner needs some breathing room but keeps paying most of what they owe, falls under Chapter 11 for businesses and Chapter 13 for individuals.
Eligibility
Folks filing Chapter 7 must show that their income is less than half the median income for the state they live in. To file Chapter 13, you must have unsecured debts of nearly $400,000 or less or nearly $1.2 million or less of secured debts. The requirements for a business filing Chapter 11 are unsecured and secured debts of about $2.5 million or less. Note that the guidelines for filing are updated periodically to account for inflation, changes in the cost of living, and changes in median incomes.
Note that eligibility does not presuppose that your request will go through. It merely means the court will hear your case.
Financial Circumstances
You must also show that your current resources do not permit you to continue paying your debts with any hope of paying them off. This means showing the court what your total debt load looks like. Similarly, you'll want to show the court the costs you have, such as personal living expenses, if filing Chapter 7 or 13, or business expenses, if filing Chapter 11.
Having the ability to pay is also important if you're filing for Chapter 11 or 13 bankruptcy. You must show income sufficient to execute a payment plan if the court grants you relief.
Debts
Creditors will have some say in how the case unfolds, too. If your case proceeds, they will be entitled to participate in a hearing where their concerns are heard.
The Trustee
A court-appointed official, a trustee, will administer most of the bankruptcy. They are responsible for maximizing payment of debts to the creditors, and they will tell the court when the process is completed.