Qualifying for Chapter 7 Bankruptcy — Net Monthly Income in the Red (or close to it)
If you are filing a chapter 7 then your net monthly income cannot exceed (by much) your regular monthly expenses. Most people who file chapter 7 are either breaking even (without counting the charge card debt or other debts that will be discharged) or are in the red.
However, there are other hurdles to overcome which include an inquiry into the Debtor’s household income for the 6 months prior to filing and how that compares to the state median standards set by the IRS. This is the first test that determines test that determines which bankruptcy chapter is available to you.
Qualifying for Chapter 13 Bankruptcy — Net Monthly Income is Positive
The opposite is true for filing a chapter 13. In this situation you have to show that you are still solvent but need to restructure your debt in order to pay all or some portion of it over the next 3 to 5 years.
Most Chapter 13’s are still filed to cure mortgage arrearages in order to stop a pending foreclosure and require the lender to accept the catch up payments that will be made through the Chapter 13 Plan.
Outside of bankruptcy, the lender has to right to accelerate the note and refuse further payments unless the entire arrears is paid at once. Most people cannot do that once they have fallen behind on the mortgage. Chapter 13 puts control back in your hands. The remaining unsecured creditors also have to get paid something through the plan, but not necessarily. The Chapter 13 restructuring plan allows you to focus your resources on what in more important and eliminate or reduce the debt that is not beneficial.