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You would think with all the pressure for debtors to the file the "good" bankruptcy, i.e. Chapter 13 personal bankruptcy.....that there wouldn't and couldn't be anyway that a debtor could be disqualified, but it is possible and for the most surprising reasons:
1) A Chapter 13 Debtor needs a "working" income to be confirmed. In general a debtor must be making an income from work and not from unemployment compensation and/or disability income . There are exceptions to this rule, but for most purposes including the modification of a car loan or keeping a home, the working income is a must.
2) You can have too much debt. For simple purposes, a Debtor cannot have more than $340,000 of unsecured (credit card style debt) and no more than approximately $1,000,000 of secured debt. So what does this mean?
Example: Charlie Sheen owns four homes. Each is worth $500,000 and has a $600,000 mortgage. Mr. Sheen makes $200,000 per year in income. He decides to surrender three homes and keep the fourth. Well - here's how it goes: He has $1,500,000 in secured debt that is now unsecured because the home are surrendered. So how about keeping the homes: We he could keep two homes or $1,000,000 of secured debt but then he has to get rid of $1,000,000 of unsecured debt. Bottom line - he has too much debt and really too much income to use Chapter 13
3) You don't make enough money - just because Chapter 13 is call the "good" bankruptcy doesn't mean its good for everybody. Instead - let's just say that Chapter 13 works extremely well for debtors with income between $50,000 and $175,000 depending on debt load.
So what are the alternatives:
1) A Chapter 11 Bankruptcy where over 50% of the debts are personal.
2) A Chapter 7 Liquidation Bankruptcy claiming that over 50% of the debts are business related (investment properties). This is a nifty way to get a high income debtor into a Chapter 7 even thought they have a high income. From a moral standpoint, the legislature has decided that the bankruptcy discharge has "less costs" to a business debtor and doesn't force the "moralistic" repayment programs down the debtor's throat.
Conclusion: To make a Chapter 13 work, you need a working employment income that is above $45,000 and less than $200,000 with unsecured debts less than $340,000 and secured debt under $1,000,000. For a high income debtor with primarily business debt and no properties worth saving, the Chapter 7 liquidation is best. Any lastly, for the high income debtor who needs a personal reorganization similar to Chapter 13 - the Chapter 11 becomes relevant and cost effective.
For more information and in the Chicagoland Area to set up a bankruptcy consultation, please call 877-GO-GO-NLO or Click Here (info@nelsonlawoffice.com)
1) A Chapter 13 Debtor needs a "working" income to be confirmed. In general a debtor must be making an income from work and not from unemployment compensation and/or disability income . There are exceptions to this rule, but for most purposes including the modification of a car loan or keeping a home, the working income is a must.
2) You can have too much debt. For simple purposes, a Debtor cannot have more than $340,000 of unsecured (credit card style debt) and no more than approximately $1,000,000 of secured debt. So what does this mean?
Example: Charlie Sheen owns four homes. Each is worth $500,000 and has a $600,000 mortgage. Mr. Sheen makes $200,000 per year in income. He decides to surrender three homes and keep the fourth. Well - here's how it goes: He has $1,500,000 in secured debt that is now unsecured because the home are surrendered. So how about keeping the homes: We he could keep two homes or $1,000,000 of secured debt but then he has to get rid of $1,000,000 of unsecured debt. Bottom line - he has too much debt and really too much income to use Chapter 13
3) You don't make enough money - just because Chapter 13 is call the "good" bankruptcy doesn't mean its good for everybody. Instead - let's just say that Chapter 13 works extremely well for debtors with income between $50,000 and $175,000 depending on debt load.
So what are the alternatives:
1) A Chapter 11 Bankruptcy where over 50% of the debts are personal.
2) A Chapter 7 Liquidation Bankruptcy claiming that over 50% of the debts are business related (investment properties). This is a nifty way to get a high income debtor into a Chapter 7 even thought they have a high income. From a moral standpoint, the legislature has decided that the bankruptcy discharge has "less costs" to a business debtor and doesn't force the "moralistic" repayment programs down the debtor's throat.
Conclusion: To make a Chapter 13 work, you need a working employment income that is above $45,000 and less than $200,000 with unsecured debts less than $340,000 and secured debt under $1,000,000. For a high income debtor with primarily business debt and no properties worth saving, the Chapter 7 liquidation is best. Any lastly, for the high income debtor who needs a personal reorganization similar to Chapter 13 - the Chapter 11 becomes relevant and cost effective.
For more information and in the Chicagoland Area to set up a bankruptcy consultation, please call 877-GO-GO-NLO or Click Here (info@nelsonlawoffice.com)
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