Bankruptcy isn’t for everyone, and it is far from an ideal course of action, but for many, it is the most sensible option when faced with severe financial fallout. When struggling to pay your bills, there is perhaps no better way to silence hungry debt collectors and free yourself from the burden of crushing debt than by declaring bankruptcy. Therefore, if you have done everything that you could do and are now considering bankruptcy, it’s important to know what qualifies you as a candidate. To help determine who should and who should not consider bankruptcy, Robert Canning, a bankruptcy attorney in Los Angeles, CA, describes a few matters among many that he considers when advising a client.
To begin, Canning says, a client needs to know that not everyone is eligible to declare bankruptcy. “Some people are unaware that they are not eligible if they have too much income. Under the IRS guidelines, a person can only earn so much. If they are single, for example, they can earn a certain amount that can increase depending on whether they have children/are married. The more children there are, the more a debtor can earn and still declare bankruptcy. So, a major consideration is: How much do you earn?”
The more dependents an individual has, the more he/she can earn and still be eligible for bankruptcy. Marriage also factors into it. NOTE: Even if a client makes more money than allowed under the bankruptcy guidelines, other factors come into play such as rent/mortgage, auto payments, number of vehicles, involuntary payroll deductions, and so forth that are higher than the national average. Higher costs and deductions may allow the debtor to file bankruptcy. The usual payroll deductions from a person’s salary may be a way to prove that his financial situation is worse than originally thought. Only an experienced bankruptcy attorney is qualified to determine the EXACT deductions and the amount of deductions allowed.
It is also important to consider possible income streams that may change a person’s situation. One uncommon but possible situation includes a scenario in which a potential bankruptcy candidate has an ailing parent who is expected to pass in the immediate future (within 3 to 6 months) and leave an inheritance. In such a case, Canning would recommend holding off until the situation is resolved.
One of the experiences he encounters often occurs when a client has a substantial stake in real estate property (usually a debtor’s residence), and would qualify for Chapter 13. In this scenario, Canning would determine whether a client is eligible for a Strip Motion - this motion, made by petitioning the court, occurs when a homeowner has a second mortgage on his/her home that is completely unsecured. With a Strip Motion, the second mortgage on the home could be discharged - as long as the Chapter 13 debtor completes the Chapter 13 plan over a period of 36 to 60 months.
An example of the responsible use of a Strip Motion: “I have a client who has a home that is underwater - he has a first and second mortgage,” Canning says. “The home is worth$350,000 and he owes about $500,000 dollars on his first and second mortgage. He thought, ‘Maybe I’ll just walk away from the home,’ so I started discussing his particular matter with him by telephone. In this situation, he does have a second mortgage that is totally unsecured. As a result, he began thinking maybe he will file a Chapter 13, by stripping off the second mortgage, paying the first mortgage [always in a timely manner each and every month], staying in the area, and, hopefully, living happily ever after.”
Though these are some of the considerations that a lawyer looks into when determining a client’s eligibility for bankruptcy, the process is ultimately much more subtle than it may seem at first. This is why consulting an experienced bankruptcy attorney is crucial if you want YOUR bankruptcy to be handled properly and expertly. Having your case handled by an experienced, qualified bankruptcy attorney is a wise choice for this once in a lifetime occurrence.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.