Chapter 7 Bankruptcy, Nadya Suleman has made no secret of her financial troubles, which came to a head this week when the “Octomom” filed for bankruptcy. The mother of 14 owes creditors nearly $1 million, court papers showed, roughly 20 times as much as the value of her assets. ”It is pretty extreme in terms of how much debt she has,” says Richard Hipp, manager of bankruptcy operations at nonprofit credit counseling organization InCharge Debt Solutions. The bankruptcy might give Suleman a fresh start, but the filing means that her creditors – which include a Christian school and her own father – are out of luck.
Suleman filed for Chapter 7 bankruptcy, in which a debtor’s assets are liquidated and nearly all unsecured debt is discharged. This might seem like a more drastic option than Chapter 13, which lets filers hang onto some assets – such as a house or a car – if they agree to enter a repayment plan. Before filing, a person considering bankruptcy has to meet with an attorney and go through a means test, which helps determine which type of bankruptcy is most appropriate for them. The test compares the person’s monthly expenses and income to see how much is left over that could be used to pay off debt.
The means test aims to answer the questions, “Do you need to preserve property and do you have assets to pay back the creditors?,” says Hipp. In Suleman’s case, the answer would appear to be “no.” She owes her landlord $30,000 in back rent and the house where she lives now is facing a foreclosure auction; the owner says his credit has been ruined because Suleman’s lapsed rent payment caused him to fall behind on the mortgage payments. With assets of only around $50,000, there’s not much to go around to satisfy Suleman’s creditors. And even if her media exploits bring in significant income, the expense of caring for 14 kids is still considerable, although Suleman receives benefits including $2,000 a month in food stamps, according to the Orange County Register.