Any individual considering filing for bankruptcy always confronts an array of complex questions before doing so: What type of bankruptcy should he or she file? Should he or she file alone, or jointly with a spouse? Where should the bankruptcy petition be filed? Does the individual even qualify to file for bankruptcy?
We’ve addressed the first two questions in the past, so this post considers those last two. First, we’ll take a look at the venue rules that apply to bankruptcy cases, and when those rules will let someone file in Arkansas, rather than some other state. Second, we’ll provide a brief overview of the differing eligibility requirements for Chapter 7 and Chapter 13 bankruptcies.
When is Bankruptcy Venue Proper in Arkansas?
Whenever a person goes to court, numerous complex rules apply to determine what court he or she can file in. In the bankruptcy context, bankruptcy venue rules determine in which state a person may file for bankruptcy. These venue rules are identical regardless of whether a person chooses to file under Chapter 7 or Chapter 13.
The bankruptcy venue rules require a bankruptcy petition to be filed in the federal district where the debtor has lived for the longest period during the preceding 180 days, which is approximately six months.
Example: John Doe wants to file for bankruptcy on January 1, 2018. From January to October 2017, John lived in Oklahoma City, but he moved to Arkansas in mid-October. If he files for bankruptcy on January 1, 2018, he will have to file in the Western District of Oklahoma, because he lived there for a longer period during the last six months than in Arkansas.
Caution: Proper Venue Does Not Determine Exemptions
As we’ve explained before, the U.S. Bankruptcy Code allows each state to determine what exemptions from bankruptcy its residents may use. Using that authority, each state has adopted a unique set of exemptions for its residents. But the differences between states’ exemptions means that there could be room for debtors to try to game the system by moving from a state with unfavorable exemptions to one with exemptions that he or she prefers.
To prevent these kinds of games, the Bankruptcy Code has a different rule for when a person can rely on a state’s exemptions than the venue rule discussed above. Specifically, bankruptcy courts use a two-step process to determine which state’s exemptions apply:
- If the debtor has lived in one state for the entire 730 days (i.e., two years) before filing for bankruptcy, the court will apply the exemptions from that state.
- If the debtor has moved from one state to another within the last two years, then the court looks back an additional 180 days (six months), applying the exemptions from the state where the debtor lived the longest during that prior six-month period.
Example: Before 2017, John Doe (from the example above) lived in Texas his entire life. As of his January 1, 2018, filing date, John had moved within the last two years. Consequently, the court will look to the six months immediately before those two years. John lived in Texas for the entirety of those six months, so Texas’ exemptions law will apply in John’s case.
Who is Eligible to File for Bankruptcy?
In addition to the venue rules—which determine where a person can file for bankruptcy—federal law also describes rules for determining who is eligible to file for bankruptcy in the first place. The eligibility requirements for filing bankruptcy vary depending on what type of bankruptcy a person chooses, but there are some common requirements. Two of those commonalities are the following:
- Before an individual can file for bankruptcy, he or she must have undergone credit counseling from an approved credit counseling agency within the previous 180 days.
- An individual cannot file for bankruptcy if, during the preceding 180 days, he or she already filed for bankruptcy, and that case was:
- Dismissed by the court for the debtor’s willful failure to follow its orders or appear before the court; or
- Voluntarily dismissed by the debtor after creditors applied for relief from the automatic stay.
Chapter 7 Bankruptcy Eligibility
Chapter 7 bankruptcy, which involves selling a debtor’s non-exempt property to pay off as much of his or her debts as possible, is only available if the debtor’s income is too low to support a repayment plan under Chapter 13. The Bankruptcy Code prescribes a “means test” to determine if that is the case. The means test has two steps:
- If the debtor’s current monthly income—his or her average income over the six months before filing—is less than the state median income, then he or she automatically qualifies for Chapter 7.
- If the debtor’s current monthly income exceeds the state median, then a further, more complicated calculation is required. If the result of that calculation is too high, the court will either dismiss the case or convert it to Chapter 13, unless the debtor can show special reasons why he or she should be allowed to continue under Chapter 7.
Chapter 13 Bankruptcy Eligibility
In contrast to Chapter 7, Chapter 13 bankruptcy is only available if a debtor’s income is high enough to service his or her debts under a repayment plan. Also, Chapter 13 is only available if the debtor does not have too much debt in total. Specifically, a person can only file under Chapter 13 if:
- His or her secured debt—loans that are secured by collateral, such as car loans—is less than $1,184,200; and
- His or her unsecured debt—like credit card debt—is less than $394,725.
Why You Need a Bankruptcy Attorney When Filing for Bankruptcy in Arkansas
If the above discussion makes one thing clear, it is that who can file for bankruptcy in Arkansas involves a host of complex venue and eligibility rules. Without the help of a knowledgeable Arkansas bankruptcy lawyer, it is easy to get lost in all the details and not know what to do.
Nolan Caddell Reynolds is an Arkansas bankruptcy law firm serving clients in Arkansas and Oklahoma. We work hard to help our clients understand their options under the Bankruptcy Code, decide what is best for them, and successfully navigate the complex process of filing for bankruptcy.
If you are considering filing for bankruptcy in Arkansas or Oklahoma, contact the experienced bankruptcy attorneys of Nolan Caddell Reynolds for a free consultation today.