The first time I meet with my bankruptcy clients, I am basically trying to determine two things. First, I want to know if they are eligible to file bankruptcy. If they aren’t eligible to file then we don’t need to discuss the subject further. There are several factors that limit eligibility to file bankruptcy. For example, I ask if they have ever filed bankruptcy before. When you receive a discharge in a bankruptcy case you are prevented by statute from receiving a discharge in subsequent cases filed within a certain amount of time. The time varies depending upon under which chapter the first case was filed and which chapter they want to file the second time.
Chapter 13 bankruptcy cases have additional limitations. There is a limit on how much debt a debtor can have at the time of filing bankruptcy. The debt limits are currently $1,149,525.00 for secured debt and $383,175.00 for unsecured debt. These limits increase every few years.
Second, I want to determine if bankruptcy will offer them relief from their debt, and if so which chapter would be best for them. I often get asked which chapter is best. The truth is that the two chapters of bankruptcy are like tools. You select which one is bests suited for your situation. If you need to drive a nail into a wall you are better off using a hammer than a screwdriver. The same goes for bankruptcy. If you are trying to save your home from foreclosure then you wouldn’t file a chapter 7 case. You would file a Chapter 13 case.
Every once in a while i meet with someone who is better off not filing bankruptcy. These people usually fall into two categories. The first category is made up of debtors who have little debt and can afford to repay their creditors with minor adjustments to their budget. When I meet with people in this situation I try to offer them advise and how to adjust their budget so that they are better able to pay off their debt. The second category is made up of debtors who are basically judgment proof. They have no nonexempt assets and all income is exempt from seizure by creditors. I am seeing more and more of this type of debtor. Usually they are elderly and their sole income is social security. They are being hounded by creditors, but in truth the creditors can do little else but call them in order to collect. I try to reassure them that everything will be okay and that they should start screening incoming phone calls. If they feel it is worth spending the money on bankruptcy to stop the collection calls then I file the case and get them a discharge.