I Can’t File Chapter 7 or Chapter 13!
It happens very rarely but, from time to time, we speak to a client that fails to qualify for Chapter 7 (liquidation) or Chapter 13 (reorganization). If they still want to file bankruptcy personally, what should they do? Chapter 11 reorganization. Wait! I thought Chapter 11 was for businesses? Not necessarily.
Chapter 11 is available to “a person that may be a debtor under chapter 7” (section 109(d)). Chapter 7 is available to any person, and Chapter 13 is available to any person with regular income that owes, on the date of the filing of the case, noncontingent, liquidated unsecured debts of less than $394,725 and noncontingent, liquidated secured debts of less than $1,184,200 (these numbers are for debtors filing in 2018 and are adjusted regularly).
Noncontingent debt is a determined amount of debt, such as from a judgment. Another way to explain this is that contingent debt is dependent upon some uncertain future condition. Liquidated debt is an obligation that is clear and undisputed by any party. If the debt is unliquidated, then the amount of the debt is unknown. Therefore, a parent who guarantees the obligation of his child, or the business owner who guarantees the debt of his organization may have contingent unliquidated debt if the payments on the obligation are current, because the liability under the guarantee is dependent upon the default of the obligated party, and the amount owed under the guarantee is uncertain. Someone being sued may also have contingent and unliquidated debt if there is no Court judgment yet and the amount at issue is in dispute.
In order to file a Chapter 7 liquidation case, the debtor must qualify under the Means Test meaning, generally, he must have no disposable monthly income. In addition, the value of the debtor’s assets must be exempt, or the debtor must be able to pay the non-exempt value of his assets to the bankruptcy trustee. If the debtor fails the means test or has assets that would cause him to have to pay an unaffordable amount to the bankruptcy trustee, then the debtor can explore the possibility of a Chapter 13 reorganization case.
However, in some circumstances, the debtors noncontingent and liquidated unsecured debts exceed $394,725, and secured debts exceed $1,184,200 (or whatever the debt limits are when you’re considering a bankruptcy).
In that instance, the debtor has a few remaining choices: (1) file a Chapter 11 case, (2) settle with the creditors individually, outside of bankruptcy, or (3) wait for some circumstance to change so that the debtor qualifies for either Chapter 7 or 13 at some point in the future.
If you have bankruptcy questions, or want to understand the differences between Chapter 7 liquidation, Chapter 13 reorganization, or Chapter 11 reorganization, please contact us to schedule a free initial consultation to discuss your options at 813-774-5737 or email me directly at firstname.lastname@example.org. Please also check out the Crushing Debt book on Amazon. You can also subscribe to the Crushing Debt Podcast, on Apple Podcasts, Spotify, and other podcast players, including Amazon Echo (“Alexa”) for more free information about these topics.
Shawn M. Yesner, Esq., is the host of the Crushing Debt Podcast, author of the Crushing Debt book, and founder of Yesner Law, P.L., a Clearwater-based boutique real estate and consumer law firm that helps clients eliminate the financial bullies in their lives. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Clearwater, Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Pinellas Park, Largo, St. Petersburg, and throughout the greater Tampa Bay area.