Is It Hard to Get Chapter 7?
We wouldn’t say it’s “hard,” but we would say it’s “harder” now than it was twenty years ago. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Creditor lobbyists convinced many lawmakers that Chapter 7 filing abuse was serious and widespread. The evidence clearly shows that circumstances beyond the debtor’s control, mostly medical bills, prompt most bankruptcy filings. Sometimes, however, legislators don’t pay much attention to facts.
Nevertheless, Chapter 7 bankruptcy is still an option. This form of bankruptcy is usually the best option for people with high amounts of credit card, medical bill, and other unsecured debts. A Chicago bankruptcy lawyer can usually wrap up a Chapter 7 in under a year. So, families can quickly begin rebuilding their credit scores and move forward with their lives without excess debt.
Chapter 7’s informal qualifications, which involve the Schedule I/J balance and the number of reaffirmation agreements, vary in different jurisdictions.
In the bankruptcy filing package, Schedule I details the debtor’s monthly income. Schedule J lists the debtor’s monthly expenses. If the debtor’s income exceeds the debtor’s asset, quite frankly, the debtor doesn’t seem distressed. That’s especially true if the debtor spends significant sums on entertainment and otherwise seems to have some disposable income.
Quite simply, if the debtor is in the red each month, the trustee (person who manages a bankruptcy for a judge) doesn’t look too closely at the filing package. Furthermore, the trustee usually doesn’t ask too many questions at the creditors’ meeting. However, if the debtor is in the black each month, the trustee looks at the paperwork through a microscope. Additionally, the trustee often asks unwanted questions.
Reaffirmation agreements “reaffirm” the financial commitment a debtor made to a creditor. Many Chapter 7 debtors execute reaffirmation agreements for basic bills, like car payments, rent payments, and utility service.
Incidentally, Chapter 7 wipes out all existing financial agreements. If the debtor reaffirms one, a Chicago bankruptcy lawyer has a chance to renegotiate payment terms and other details.
Most trustees understand the need for some basic bill reaffirmation agreements. However, if debtors reaffirm all monthly bills and aren’t willing to lower their standard of living, at least while the case is pending, that’s a red flag. Reaffirmation agreements for optional expenses, like medical bills, are also a red flag.
Chapter 7’s formal qualifications, which include budgeting classes and, most importantly, the means test, are uniform in all jurisdictions.
All debtors must complete a pre-filing debt counseling class and a post-filing financial management class.
The first requirement normally isn’t an issue. Bankruptcy is a last resort for most people, so they’ve usually had debt counseling. The second class is available online. It usually costs a few dollars and takes a few minutes to complete. Additionally, many trustees sponsor free seminars that satisfy this requirement.
As for the means test, at the time of filing, the debtor’s income must be under the statewide average. As of November 1, 2023, the average monthly income for a family of four in Cook County is $2,123. This income varies in other counties.
The government has cracked down on the means test lately. Nevertheless, we’ve never had a client who failed to qualify for Chapter 7 based on the means test. Even if that happens, other options are available.
Reach Out to a Detail-Oriented Cook County Lawyer
No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.