If you're considering bankruptcy or have already made the decision that it's the best alternative for getting out from under overwhelming debt, the next step is determining which type of personal bankruptcy to choose -- Chapter 7 or Chapter 13.
There are advantages and disadvantages to both, which you'll learn as you read more about them or as you discuss the situation with your Colorado bankruptcy attorney.
However, it's important to understand that not everyone can qualify for Chapter 7. If you don't, Chapter 13 is generally still a viable alternative. Let's look at the reasons why you may be ineligible to file for Chapter 7.
Your income is too high.
A filer's income is determined by a means test, which looks at their average total monthly income for the past six months and compares it with the median income for the state. Colorado's median income in 2016 (the last year for which numbers are currently available) was $65,685.
Monthly income, of course includes wages, bonuses and tips. However, it also includes interest, dividends, spousal and child support, retirement and pension benefits, unemployment compensation and other government benefits (with the exception of Social Security).
If your income is higher than the state median, you may still be able to file for Chapter 7. The second part of the means test involves your monthly expenses -- specifically what are considered "allowed" expenses, like food and rent. If you have enough money left each month from your income after those expenses to pay at least some of your unsecured debt, than you won't qualify for a Chapter 7 filing.
You have previously filed for bankruptcy or a case was dismissed.
If went through a Chapter 7 bankruptcy eight years ago or more recently, or a Chapter 13 bankruptcy not more than six years ago, you will have to wait to file for bankruptcy again.
If a bankruptcy case (either Chapter 7 or Chapter 13) was dismissed within the past six months because it was considered fraudulent, you violated a court order or at the request of a creditor, you can't file again.
If you meet the requirements for a Chapter 7, you're required to go through credit counseling within six months before filing. If you fail to do that, with a few exceptions, you won't be able to proceed with the filing.
Bankruptcy can be a daunting process. However, if you follow the procedures and have sound legal guidance, you can emerge and make a fresh start on your financial future.