When is a Chapter 7 Bankruptcy not an Option?

There are some people who do not really have bankruptcy as an option despite low income. Some can only benefit from a payment plan provided by a Chapter 13, but they can’t afford the payments. Here’s an outline of people who may not benefit from a bankruptcy. Since everyone is different and there are exceptions to every rule, it’s always best to speak with an attorney when considering bankruptcy.

Prior Bankruptcy Filing: People who received a Chapter 7 discharge within the last eight years must wait before filing another Chapter 7. The option to file a Chapter 13 bankruptcy may still be available if the person has income and can afford to make monthly payments.

Too Little Unsecured Debt: People with a very small amount of unsecured debt typically should not file a Chapter 7 bankruptcy. Examples of unsecured debt are credit cards, medical bills, deficiency from a repossessed vehicle, and utility bills. It’s usually not worth filing if there’s less than $5,000 in unsecured debt. In a way, it’s wasting the right to file bankruptcy since you have to wait so long before filing another one. Also, people with a very small amount of unsecured debt aren’t as harmed by the creditors as someone with higher debt.

Too Much Equity in Real Estate: This is often a problem with low income elderly homeowners who have paid off their mortgages. Despite the low income, they risk losing their home in a bankruptcy because the home is worth too much. In Michigan, married couples may still be able to keep their homes even if there is too much equity. There’s a Michigan exemption that can be used by some couples.

Only Non-Dischargeable Unsecured Debt: Some debt can’t be discharged or canceled in a bankruptcy. Student loans, child support, most income taxes, and certain criminal fines are non-dischargeable. A Chapter 13 payment plan may benefit someone who only has non-dischargeable debt, a Chapter 7 will not.