If the bankruptcy court finds that I have enough income to pay off my debt what repercussions can occur from filing a chapter 7 and what would happen next? Would my debt collectors be even more aggressive and file judgments immediately? Is there room for negotiations with debt collectors? Is it best to file a chapter 13? Basically, what other options are available if chapter 7 does not go through?
First, you would have to look at your income in light of the means test. If the means test shows you have too much income, you could not file a chapter 7 but would have to file a chapter 13 if you were to file. The means test in conjunction with your budget will also dictate how much of the unsecured debt you would have to pay back. If you do file a bankruptcy and it is not successful, the secured creditors will likely seek their collateral in short order. Sometimes when you file and bankruptcy and it dismisses, some unsecured creditors have already written the debt off and do not resume collection. You can always negotiate to settle the debt. Usually creditors will ultimately settle for around 40% or less if you are persistent with them. However, keep in mind that all debt that is forgiven will have to be declared as income. That is not the case in Bankruptcy, though. Debts forgiven in bankruptcy do not create taxable income.
This answer expresses only general statements about bankruptcy and/or debt defense and does not constitute advice to you in any form and does not create an attorney client relationship between the party asking the question and the party providing the answer. Furthermore, all cases are fact specific and it is not possible to give you legal advice without a complete evaluation of your case or if you are already represented by an attorney. Therefore, this answer does not constitute legal advice of what you should do specifically in your case. You should seek local counsel to help you with your specific issues.
Chapter 13 Bankruptcy Attorney
You should know where you stand regarding whether or not there is a "presumption of abuse" for Chapter 7 filing PRIOR to filing. The test to determine such abuse is referred to as the Means Test. I rarely see the test challenged by trustees, but it could be challenged by a creditor. If such a challenge is successful, they could have your case dismissed or, with your consent, convert your case to a Chapter 13 bankruptcy. We are a Fort Lauderdale based bankruptcy law firm that would be happy to provide you with further guidance.
Chapter 7 Bankruptcy Attorney
It's not likely the judge that you will have to worry about, but the US Trustee. The US Trustee's Office is a branch of the DOJ that monitors bankruptcy filings for fraud and abuse. They are the ones who will oppose your discharge if you don't qualify for a 7.
There are basically three hurdles you have to clear regarding income in a Chapter 7:
1) Either you are below median income for your household size OR if you are over median income you can pass a means test. A means test is meant to measure your ability to pay in a Chapter 13.
2) Your disposable income, net income minus actual expenses, is low enough that you cannot afford to pay in to a Chapter 13 plan, usually $100 a month or less.
3) Granting you a discharge would not otherwise be an abuse of the code. This means that if your disposable income is low because because you have an vacation home or other extravagances, you may not be able to do a 7.
If you file a 7 and cannot meet any of the these three tests what will likely happen, assuming no fraud on your part, would be that the US Trustee would demand that you convert to a Chapter 13 or they will motion to dismiss your case.
I recommend that you speak with an attorney. If there is cause for concern regarding your income then there are likely other issues, like assets, that you will need a professional opinion on.
The Court would not necessarily make that determination. When you file Chapter 7 you complete a form known as the "means test." If you are determined to have sufficient monthly disposable income to fund a Chapter 13 payment plan, a presumption arises and should your creditors or the trustee challenge your case as abusive, you would have the burden of proving to the court your getting a Chapter 7 discharge is not an abuse. Otherwise you would be forced into a Chapter 13 case or dismissed.