Typically, an individual who is eligible for bankruptcy relief will proceed either under Chapter 7 or Chapter 13. Chapter 7 relief is intended for individuals and small businesses who have very little in the way of equity in their assets and little if any disposable income, i.e. people who live from paycheck to paycheck. Chapter 13 relief is intended for individuals who either are not eligible for Chapter 7 relief or need breathing room to get caught up on their debt, such mortgage and car payments that are delinquent, or to pay back taxes over time with more manageable payments. If one has too much non-exempt equity in one’s home, vehicle, or other assets, or earns more money that is needed to meet one’s reasonable and necessary living expenses (based on IRS national and local standards), filing for Chapter 7 bankruptcy relief will be deemed presumptively abusive. Unless special circumstances exist that would overcome the presumption of abuse, one would have to proceed under Chapter 13.
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