No equity in my home. Mortgage is upside down. 60,000 in credit card bebt. pending divorce. 2 kids. Eligable? Chapter 7 or chapter 13?

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No equity in my home. Mortgage is upside down. 60,000 in credit card bebt. pending divorce. 2 kids. Eligable? Chapter 7 or chapter 13?

I make 65,000 yr and wife makes 45,000 yr. we’re a month late with credit card payments and a month late with mortgage payments. After all monthly payments are made, we are left with an approximate $1,500 deficit. Need a plan before it’s too late. Where do I start? Are we eligable? Joint or separately?

Asked on July 1, 2009 under Bankruptcy Law, New York


M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

Since you both make substantial and regular income you will probably not meet the criteria for Chapter 7 bankruptcy.  There is a means test that you can fill out to see whether or not you quailify.  Again, however, based on your facts I'd have to say that you are probably looking at a Chapter 13.  This might be a more attractive alternative for you anyway; filing of a petition under chapter 7 may result in the loss of property.

 A chapter 13 bankruptcy is also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts at reduced payments. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period "for cause." If the debtor's current monthly income is greater than the applicable state median, the plan generally must be for five years.  Under this plan a debtor can usually retain their property, including their home.

As for whether or not you should file jointly, it is usually preferable for both spouses to file for a joint bankruptcy for the following reasons:

          Bankruptcy costs - the costs that debtors have to pay for a bankruptcy are about the same for a joint case as they are for an individual case.  If your spouse files at a later time, you will be paying the costs for two cases;

          Joint debts - if your spouse does not join in your bankruptcy and you and your spouse share responsibility for payments on the same debts, your spouse will remain liable for the joint debt and may continue to be pursued by creditors;

          Efficiency - the amount of work performed in filing joint schedules, statements and other documents in a bankruptcy case will be reduced if you and your spouse file a joint bankruptcy.

There are, however, several valid reasons for not filing for joint bankruptcy.  One obvious reason is that your spouse does not want to participate in a bankruptcy.  But, there are a few situations when a joint bankruptcy may be a bad idea or just isn't available:

          Your spouse is barred from filing because of a prior bankruptcy;

          You and your spouse jointly own property that is in excess of federal exemption levels that is otherwise is protected from creditors by broader exemptions under state law;

          If you are pursuing a Chapter 7 bankruptcy (unlikely in your case), your spouse is barred from filing by some likely objection to discharge;

          If you are pursing a Chapter 13 bankruptcy, your spouse has a large priority debt, or has debt above the Chapter 13 debt limits, or has some other debt problem that makes a joint bankruptcy impossible;

           In some community property states, it is not necessary for the other spouse to join in the bankruptcy because nearly all community debts and community property will be affected by the individual spouse's bankruptcy.  (However, this will not affect you since New York is not a community property state.)

There are other considerations with respect to non-joint debts and exemptions.  To determine if you and your spouse should file for joint bankruptcy, and if so, under which chapter, I strongly recommend that you consult with an attorney. 

Best of luck.



IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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