How do I qualify for Chapters 7 and 13
Budgets for Chapter 7 and 13 bankruptcy include expenses that are accepted by the trustees and judges. They make sense for your needs and income. Budgets for a Chapter 7 bankruptcy need to support the conclusion that you have no money left over after your reasonable and
necessary expenses to pay a Chapter 13. You are allowed to take necessary and reasonable expenses so you can continue in a normal home drive a normal auto to work. If you are a doctor making 800,000 a year perhaps a new Lexus is reasonable so you can get back and forth to work to save lives. But if you make 50,000 a year a new Lexus is not reasonable. Of course a 175 per month Chapter 13 payment is not what the Doctor will be repaying either. You can expect the Doctor’s Chapter 13 payment to be more and to have larger mortgage and other expenses.
Our sample family budget is at the bottom. Here it is in a pdf format. Monthly Bankruptcy Budget Schedule J. You can find below the average allowed expenses for an average family. Each case is different. The bankruptcy court and the Trustee generally trust your expenses but they will require you to document them. If you really do spend 1000 per month on daycare as an expense the court will allow it. But you may have to give them proof of this expense such as a bill for the daycare of checks to your neighbor for the day care she is providing while you are at work.
Budgets for Chapter 7 bankruptcy
In order to qualify for a Chapter 7 your expenses should leave you with just enough money to repay the home mortgage
and auto loans but not enough to enable you to repay a Chapter 13 payment. Your monthly income is your prior six months of income divided by 6. Note you do not include your current month of income. This is what is used for your means test income. If your income is less than the average monthly income for the same size family you automatically qualify for Chapter 7. But you may still qualify for Chapter 7 if your normal and reasonable expenses still leave you little or nothing in your budget to repay a 13.
You are allowed to deduct normal and reasonable expenses but not luxury items. Normal and necessary contributions include items such as paying for some expenses which other people don’t need but you do. If your children are in day care you have to budget for that expense but it goes into the child care expense of the miscellaneous expense category. If you child needs special educational training you may qualify for private schooling. You are allowed to have contributions to your 401k and many other expenses look at the budget below for what the standard expenses are but there are other expenses.
Qualifying Budgets for Chapter 13 bankruptcy
If you are wanting to file as a Chapter 13 your expenses must show paying something back to your unsecured creditors is possible. But you may not be able to repay very much. Budgets with repayments as low as 1% and 0% can be approved. But the Debtor has a duty to pay back as much as he can. If the debtor is not making any attempt to tighten their belt the judge will reject the Chapter 13 plan. Two of our judges automatically approve 50% plans. The other judge will automatically approve 70% plans.
A Chapter 13 plan requires you repay your priority debts back and get them up to date. This includes taxes less than 3 years old and it includes alimony and child support. It also includes the home and mortgage be caught up if you are keeping the car or mortgage. So your budget may mean you will only be able to eat Ramen noodles for 5 years if you want to drive your Lexus to work.
A Chapter 13 also needs to pay back as much as a Chapter 7 would. If your exemptions do not allow you to keep that Lexus because you have 10,000 too much equity then a Chapter 13 Plan which pays back 10,000 to the unsecured debts will allow you to keep that Lexus or home which you may otherwise lose. The official form for the budget is schedule J. But the overall allowed expenses are below.
Chapter 7 13 Bankruptcy Budget