Chapter Seven Bankruptcy Alternatives

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Debtors should be aware that there are several alternatives to chapter seven bankruptcy relief. For example, debtors who are engaged in business, including partnerships, corporations and sole proprietorships, may prefer to avoid liquidation and to remain in business. Such debtors should consider filing a petition under chapter eleven of the Bankruptcy Code. Under chapter eleven, the debtor may seek an adjustment of debts, either by extending the time for repayment or by reducing the debt, or may seek a more comprehensive reorganization. Sole proprietorships may also be eligible for relief under chapter thirteen of the Bankruptcy Code.


Furthermore, individual debtors who have regular income may seek an adjustment of debts under chapter thirteen of the Bankruptcy Code. A particular advantage of filing a chapter thirteen is that it provides individual debtors with a home mortgage, time to "catch up" past due payments through a payment plan which will give the debtor a opportunity to save their homes from foreclosure. Moreover, the court may dismiss a chapter seven case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter seven. 11 United States Code, Sub-Section- 707(b).

If the current monthly income of the debtor (1) is more than the state median, the Bankruptcy Code requires application of a "means test" to determine whether the chapter seven filing is presumptively abusive. Abuse is presumed if the debtor's aggregate current monthly income over five years, net of certain statutorily allowed expenses, is more than (i) $11,725, or (ii) twenty-five of the debtor's non priority unsecured debt, as long as that amount is at least $7,025. (2) The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify adjustments of current monthly income or additional expenses. Unless the debtor overcomes the presumption of abuse, the case will generally be dismissed or converted to chapter thirteen (with the debtor's consent). 11 United States Code, Sub-Section- 707(b)(1).

Debtors should also be aware that debt counseling services or out-of-court agreements with creditors may provide an alternative to a bankruptcy filing.

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