Consumer Bankruptcy: Are You Eligible?

Following the enactment of the Bankruptcy Abuse and Consumer Protection Act of 2005, debtors must pass a means test to qualify for a Chapter 7 bankruptcy. Basically, to qualify you must have little to no disposable income. The means test compares your average monthly income for the six-month period preceding your bankruptcy filing against the median income of a comparable household in your state of residence. Generally, this is not an issue since those filing for Chapter 7 likely have an income that’s significantly below the median.

Even if your income is above the median, there may still be some options. If, due to your income, you do not initially pass the means test, you then complete the means test form in its entirety. Rather than qualifying based on your income, this step entails a balancing process where your overall expenses are weighed against your income. Not all expenses are allowable under this test. But if after deducting the allowable expense from your income you are left with little to no income, you will probably be eligible to file for Chapter 7. This second step of balancing expenses against income is particularly complex, and it is strongly advised that it be conducted with the assistance of an experienced bankruptcy attorney.

Regarding Chapter 13 bankruptcy eligibility, it’s important to remember that you cannot file in the name of a business (not even for a sole proprietorship). For this reason, businesses are generally steered towards Chapter 11. However, even if you are a business owner you can still qualify for Chapter 13 as an individual and still run your business. Business-related debts can be included under Chapter 13 if they are debts for which you are personally liable.

To be eligible for Chapter 13, you must demonstrate to the bankruptcy court that you have enough income (after subtracting certain allowed expense and any required payments on secured debts like an auto loan or mortgage) to meet your repayment obligations. If your secured debts exceed $1,184,200, you are not eligible for Chapter 13.

Chapter 13 vs. Chapter 7: Which is Right for You?

When deciding whether to pursue a Chapter 7 or Chapter 13 bankruptcy, it is wise to sit down with a bankruptcy attorney and analyze your income, assets, debts, and your financial goals. For example, your situation might be such that you don’t qualify for Chapter 7, and would be better off repaying your debt over a period of time in a Chapter 13 repayment plan approved by a bankruptcy court.

A Chapter 7 is a liquidation bankruptcy designed to erase a person’s unsecured debts (e.g. credit card debt and medical bills). To qualify, you must have little to no disposable income. A Chapter 13 is a reorganization bankruptcy designed for debtors who still have a regular income and are capable of repaying at least some of their debt through a repayment plan. This is the option for those who cannot pass the Chapter 7 means test. Another reason to opt for a Chapter 13 is that it offers some benefits that a Chapter 7 does not (like the ability to catch up on mortgage payments you’ve fallen behind on). Below are some additional factors to consider.

Reasons why you might file for Chapter 7:

  • You do not have the ability to repay your debt in a repayment plan.
  • You urgently need relief from your creditors. After you file for Chapter 7, the bankruptcy court can issue a discharge order in as little as 3 months; following the discharge order, you will no longer be personally liable for any dischargeable debt.

Reasons why you might file for Chapter 13:

  • You are not eligible for Chapter 7 in the first place, or have significant debts that are not dischargeable under a Chapter 7 discharge.
  • You want to avoid home foreclosure, stop your car from being repossessed, or keep property that would be nonexempt under Chapter 7.
  • You want to repay your debt, rather than have it discharged.

Reaffirmation of Debts: What, When, and Why

Reaffirmation is a way to keep certain assets during a bankruptcy that you might otherwise have to forfeit.  A Chapter 7 discharge will wipe out your personal liability for dischargeable debts (including mortgages and auto loans). However, if you are current on the monthly payments and want to keep the item the creditors will routinely forward a new agreement with the original terms (or sometimes even slightly better terms) for you to sign thus reaffirming those terms in a new contract.

When you finance the purchase of a home or a car the lender will have a lien on the house or car (it is their collateral for the loan).  Under a Chapter 7 debt discharge scenario, the lien remains attached to the collateral, and the creditor will still have the right to foreclose or repossess if you don’t make your payments. Debts like these (where your property can be held until the loan is repaid) are called secured debts.

When you reaffirm a secured debt, you are in essence signing a new agreement that reaffirms your personal liability on the loan. In other words, you are signing away your discharge rights on the debt you are reaffirming. This is a serious commitment and one that you should consider carefully. It is advisable to consult with your bankruptcy attorney before taking this step. Keep in mind that a reaffirmation agreement must be filed within 60 days after the meeting with the bankruptcy trustee.

Here are some reasons why you might want to reaffirm a debt:

  • Rebuild your credit. When you reaffirm a debt, your payments on that loan will continue to be reported to the credit reporting agencies by the lender; this will aid you in the credit rebuilding process.
  • Opportunity to renegotiate with lender for more favorable loan terms since the reaffirmation constitutes a new contract.
  • Prevent repossession or foreclosure when you want to continue making payments on the loan.

Are All Debts Discharged in Chapter 7?

You may have heard that you can extinguish all of your debt completely in one fell swoop if you file a Chapter 7 bankruptcy. In many cases, most of your debt can be discharged through a successful Chapter 7 filing, and all debts could potentially be discharged depending on the nature of the encumbrances. However, there are some debts that can never be discharged through bankruptcy.


For the most part, tax debts are not dischargeable. Tax liens and property taxes that have been assessed within a year of your bankruptcy filing date cannot be discharged.  If you are an employer, taxes that you are required to pay on behalf of your employees, like payroll taxes, can’t be discharged. Plus, sales taxes that have been paid to you by customers that you are supposed to pass along the government are not dischargeable. Though taxes are usually non-dischargeable, when very specific circumstances exist, it is possible to discharge some income tax debts.


If you are required to pay spousal support or alimony, the bankruptcy filing will do nothing to shield you from your responsibilities. The same thing is true for child support or any debts that you owe to your spouse that came about due to a dissolution of marriage. Any legal fees that you may have incurred during a child custody or child support matter would not be dischargeable. If you have financial obligations as a result of a judgment against you after a drunk driving accident that caused an injury, the debt will not be discharged in bankruptcy. You can see a complete list of non-dischargeable debts if you visit this page on the Cornell University Law School website.


The debts that we have been looking at simply cannot be discharged, but there can also be procedural barriers that prevent discharges when they could have otherwise been granted. You have to fill out detailed financial disclosure forms when you file for bankruptcy, and if anything is done incorrectly or dishonestly, discharges can be denied. You also have to complete a debtor education course to qualify for a discharge.


Set Up a Complimentary Bankruptcy Case Evaluation


A ready legal resource is just a phone call away if you would like to explore the debt relief avenues that may be available to you. We have locations in many metropolitan areas in Oregon, including Albany, Medford, and Eugene, and we also have offices that serve the Tri-Cities and Vancouver in Washington. To schedule an appointment, send us a message through the contact page on this website.


Chapter 7 Bankruptcy and Social Security Benefits

Before we get into the matter of Social Security benefits, we should provide some context about Chapter 7 bankruptcy and the intricacies that go along with it. This is a liquidation form of bankruptcy, and depending on the circumstances, it can eliminate some or all of the debts that are making like difficult for you.


To qualify for this form of bankruptcy, you must be able to pass the means test that is in place to determine whether you have enough disposable income to make an effort to pay back your debts over time. A formula is used to make this determination if your income is more than the median income in your state. Getting back to Social Security benefits, your monthly direct deposit would not be counted when this means test is being conducted.


As we mentioned previously, this is a liquidation bankruptcy, and this means that property that is not exempt or secured would be turned over to a bankruptcy trustee. Under state laws, the trustee would liquidate the property and use the proceeds to pay back creditors. The good news is that many different types of property are exempt, including your Social Security benefits. For your information, here are some of the other types of property that are exempt when you are filing for a Chapter 7 bankruptcy:


  • Alimony
  • $47,000 of Home Equity for joint filers
  • $3775 of Motor Vehicle Equity
  • Retirement Accounts and Pensions
  • Veterans Benefits
  • Some Personal Property


You are going to be required to submit a great deal of paperwork when you file for Chapter 7, including a detailed accounting of your assets. While it is true that your Social Security benefits are exempt, you have to be sure that it is clear that benefits that may have accumulated in a bank account are in fact coming from Social Security. If you co-mingle your funds in one account, it can be hard to prove that a portion of the account should be exempt because it came from your Social Security benefits.


Contact OlsenDaines Today!


If you have questions about bankruptcy, we can provide answers, and we can guide you toward the optimal course of action given your unique set of circumstances. We offer free bankruptcy consultations to people in Tigard, Salem, Klamath Falls, Roseburg, and numerous other communities throughout the state of Oregon. If you would like to set up an appointment, simply send us a brief message through our contact page and we will get back in touch with you soon as we can.


Can I File for Bankruptcy More Than Once?

Bankruptcy can be a pathway toward a fresh financial start if you simply cannot keep up with all of your financial obligations. Many of your debts will be discharged, and you can regain your footing and look ahead toward a fruitful future. If all goes well, you may never look back. You can do all the right things to rebuild your credit record, and in either seven or 10 years depending on the type of bankruptcy that was filed, it will no longer be on your credit report.


This successful scenario often plays itself out, especially if you work with a bankruptcy attorney that will help you understand the right steps to take. However, in some cases, circumstances can call for a subsequent bankruptcy filing. It is possible to file for bankruptcy more than once, but there are some important details that you have to understand with regard to the timing.


First, let’s look at multiple filings of a Chapter 7 bankruptcy. This type of bankruptcy is a liquidation bankruptcy, and unsecured debt can be discharged when you successfully file. While there is no law that prevents you from filing another Chapter 7 bankruptcy within a particular time frame, debts cannot be discharged unless you wait for at eight years to file again. The time frame for filing for a new Chapter 13 discharge is two years after the first filing.


Things are different when you file once, and you subsequently decide to file for a different type of bankruptcy. If you were in Chapter 7 bankruptcy, you could potentially qualify for a discharge under a Chapter 13 four years after the initial filing. When you flip the scenario around for a Chapter 13 filer that wants to file for Chapter 7 at a later date, you have to wait for six years if you want to get a discharge. However, there are two exceptions to this rule. There is no waiting period at all if you repaid the entirety of your unsecured debt in the Chapter 13 repayment plan, or 70 percent if it is determined that you made a sincere and concerted effort to satisfy your obligations.


Give Us a Call to Schedule a Free Case Evaluation


If you would like to learn more about multiple bankruptcy filings or any other debt relief matter, we are here to help. We offer free consultations to people in Eugene, Portland, Tigard, and several other cities in Oregon, and we also have offices in Vancouver and Tri-Cities in Washington. To schedule a free consultation, call us right now toll-free at 1-800-682-9568.

What is a Bankruptcy Means Test?

A Chapter 7 bankruptcy is a liquidation bankruptcy. With this form of bankruptcy, property that is not exempt would be turned over to a bankruptcy trustee. In most cases, there is little to no non-exempt property to surrender to the trustee. However, if there is non-exempt property, the trustee would be required to sell the property and use the proceeds to pay back as much of the debt as possible. We should point out the fact that debts are prioritized, and unsecured debts, like credit cards and unpaid medical bills, are looked upon as non-priority debts.


A Chapter 7 bankruptcy can be a potential solution for people who do not have enough disposable income to pay down all or some of their debts over time. To determine whether or not a person is qualified for Chapter 7, a means test is administered. We have offices in Portland, Eugene, Medford, Salem, and a number of other cities in Oregon, and we also have locations in the state of Washington. If your income is below the median income in your state of residence, you would automatically pass this means test, and you would qualify for a Chapter 7 filing.


You are not automatically precluded from Chapter 7 eligibility if your income exceeds the median income in your state. There is a formula that is utilized to measure an applicant’s ability to use his or her disposal income to adhere to a payment plan over a three-year or five-year period. If you have very limited income left after your basic life responsibilities are met, you may still be able to qualify for a Chapter 7 bankruptcy filing.


All is not lost if you cannot file for a Chapter 7 because you cannot pass the means test, because a Chapter 13 bankruptcy can be a viable alternative. If you would like to discuss your options with a knowledgeable member of our team, our doors are open. We can get to know you, gain an understanding of your situation, and make the appropriate recommendations. To schedule a free consultation, send us a message through our contact page and we will be back in touch with you shortly.


What is a Bankruptcy Estate?

A Chapter 7 is a commonly utilized form of bankruptcy that can give you a fresh start if you are incapable of meeting your financial obligations. As long as you do not have enough disposable income to pay back your debts over time, you can probably qualify for this form of bankruptcy. Unsecured debts, which would include unpaid medical bills and credit card debts, could be discharged if you successfully file for a Chapter 7 bankruptcy.


This is a liquidation bankruptcy, so you are required to turn over all of your nonexempt property to a bankruptcy trustee. The property would comprise your bankruptcy estate, and the trustee would be required to liquidate the property to pay back some of the debt. Certain debts are considered to be priority debts, and they would be paid first. Once the property is liquidated and the monies are exhausted after the disbursements, most unsecured debt that is left unpaid would be discharged.


Exempt Property


When you hear about the bankruptcy estate, you may have some serious concerns with regard to surrendering your property so it can be liquidated. Along these lines, there is some good news to report: some of your most valuable property is exempt. We have offices in Eugene, Portland, Medford, Salem, and several other cities in Oregon. In our state, if you own a home we can protect up to $47,000 in equity as exempt.


Plus, health savings accounts are not subject to liquidation, and you could keep up to $23,000 if you receive a settlement or a reward via a personal injury claim. Up to $3775 in equity in a motor vehicle would be exempt for each individual as well. These are a handful of the exemptions, but there are a number of others.


Our Doors Are Open!


You have recourse if you are faced with overwhelming debt that is having a negative impact on your life. A Chapter 7 bankruptcy filing is one possibility, but there are other debt relief options that you may want to explore. If you would like to discuss your situation with one of our licensed bankruptcy attorneys, our doors are wide open. We offer free consultations to people throughout the state of Oregon, and we also have offices in Vancouver, and Tri-Cities in Washington. To schedule an appointment, send us a message through our contact page.


Will Bankruptcy Impact My Retirement Funds?

Before we address the way that bankruptcy may or may not impact your retirement funds, we should explain the basic differences between a Chapter 7 and a Chapter 13. These are the two types of bankruptcies that are most commonly utilized by individuals. A Chapter 7 is a liquidation bankruptcy. Unsecured debts like credit card debts and medical bills are discharged under this form of bankruptcy. If you are current on your mortgage payments and your equity falls within a certain limit, you can retain ownership of your home if you were to file for a Chapter 7 bankruptcy.


You have to pass a means test to be able to qualify for a Chapter 7 filing. If your income is less than the median in the state of your residence, you would automatically pass this test. Getting back to the retirement question, if you are receiving Social Security benefits, they would not be counted when you are calculating your eligibility for Chapter 7 under the means test.


A Chapter 13 bankruptcy would be an option if you cannot pass this means test. It may also be a better choice for you even if you could qualify for Chapter 7, particularly if you are behind on your mortgage. This is a reorganization bankruptcy. Your disposable income is utilized to pay back some of your debts over a three-year or a five-year period. Mortgage arrearage could be corrected over the course of this repayment arrangement. When it comes to Social Security when you are in Chapter 13, the laws vary with regard to whether your benefits must be claimed as income, so your attorney will discuss this with you.


Under federal laws, virtually all retirement accounts are looked upon as exempt property when a bankruptcy is filed. The types of accounts that are exempt include 401(k)s, individual retirement accounts, 403(b)s, Keoughs, and profit-sharing plans. Most pension plans are also safe when you file for bankruptcy.


We Are Here to Help!


If you have questions about debt relief, our firm can provide you with answers. We have offices in Salem, Tigard, Albany, Portland, and other major metropolitan areas in Oregon, and we also serve clients in Tri-Cities and Vancouver in Washington. Our firm offers complimentary, no obligation initial consultations, and you can request an appointment if you send us a quick message through our contact page.



Can an LLC File for Chapter 7?

Many individual debtors file for Chapter 7 bankruptcy because they will obtain some financial breathing room through the discharge of their unsecured debts. For example, credit card debt can spiral upward over time, and it can reach the point where you simply can’t pay all of your credit card bills and the other debts that you have. If you successfully file for a Chapter 7 bankruptcy, the credit card debts could be discharged, and you will find it easier to keep your other obligations current. Credit card debts are just one type of unsecured debt that can be discharged through a Chapter 7 bankruptcy filing. Others would include medical bills, unpaid lease obligations, past due utility bills, personal loans, and payday loans.

A Chapter 7 bankruptcy can also be filed by a limited liability company. However, things work a little bit differently when it comes to the details. A Chapter 7 bankruptcy is a liquidation bankruptcy, so nonexempt property must be turned over to a bankruptcy trustee. It is liquidated, and the proceeds are used to pay the debts. When an individual files for this type of bankruptcy, many forms of property are exempt, including up to $40,000 of home equity (in the state of Oregon, or $50,000 for a married couple), $3000 of equity in a motor vehicle.

There are no such exemptions when you file a business bankruptcy, and there is no discharges. The purpose of a business Chapter 7 filing is to permanently shut the doors and liquidate the assets to pay as much of the outstanding debt as possible. The bankruptcy trustee handles the liquidation tasks, so the business owner does not have to interact directly with the creditors. You have to understand the fact that an individual owner of an LLC will still be liable for any business debt that was personally guaranteed if the proceeds from the liquidation were insufficient to pay these debts in full. Under these circumstances, you will want to consider a Chapter 7 as an individual.

If you would like to discuss a business or personal bankruptcy with a licensed attorney, we would be happy to accommodate you. Our firm offers free, no obligation consultations, and you can request an appointment if you send us a quick message through this page: Portland, OR bankruptcy attorney.