How Do You Qualify for Chapter 7 Bankruptcy?

What are the Requirements for Qualifying for Chapter 7 Bankruptcy?

In order to file for, and obtain the protection of, Chapter 7 bankruptcy, the debtor must qualify for treatment under Chapter 7. Once qualified, the debtor may file a petition for, and obtain relief under, Chapter 7. The most popular ways of qualifying for Chapter 7 are discussed below. There are other, more complex ways to qualify for chapter 7 but that requires a discussion with an attorney to determine whether the process is a good fit for you and your situation.

Who Qualifies to File Chapter 7?

A debtor who is an individual, a partnership, a corporation or any other business entity, qualifies to file for Chapter 7 protection as long as other qualifying criteria are met as discussed below. However, an individual may not file Chapter 7, or under any other chapter, if during the preceding 180 days a prior bankruptcy case was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court, or if the debtor voluntarily dismissed a previous case after creditors sought relief from the bankruptcy court to recover property.

How Do You Qualify for Chapter 7?

For a debtor to qualify to file Chapter 7 Bankruptcy, the debtor must qualify under one of a couple of different tests. The first test is whether the debtor earns less than the median income as set for the county in which the debtor resides. How this amount is determined is based on the size of the debtor's household. The more people in the household, the higher the income limits. How the income is calculated is based on the debtor's income the 6 full months prior to the bankruptcy filing date. For example, if the debtor files bankruptcy on July 15, the debtor's gross income from all sources for the months January through June are added together and multiplied by 2. This will determine the annual gross income for the debtor. If this amount is less than the median income as set for the debtor's county and size of household, then the debtor qualifies to file Chapter 7 Bankruptcy. However, if the annual gross income amount is over the median amount, then in order to file Chapter 7 Bankruptcy, the debtor must pass the "Means Test."

How Do You Qualify for Chapter 7 Bankruptcy Through the Means Test?

The Means Test is a very complicated process by which the debtor's annual gross income is divided into monthly income and then actual and government-set expenses are deducted to determine the debtor's "Disposable Monthly Income" or "DMI." The debtor's DMI is calculated to see if the debtor has enough money after expenses to make significant payments to his creditors over a period of time, such as 36-60 months. If, after deducting the debtor's actual and the government-set expenses, the debtor has less than $7500 in disposable annual income, then the debtor qualifies for Chapter 7. If the debtor has over $7500 in disposable annual income as calculated by the Means Test, then the debtor will need to look at Chapter 13 or other solutions. If this all seems a little confusing, you're not alone. Most bankruptcy attorneys do not have a very good handle on it either. If you need to satisfy the Means Test in order to Qualify for Chapter 7 Bankruptcy, your attorney will do the calculations after a careful review of your expenses and income.

Can You Have Too Much Debt to Qualify for Chapter 7?

The amount of debt does not matter in order to qualify for chapter 7. However, the type of debt can impact whether the debtor must first pass the Means Test or not. If the debtor has primarily consumer debts, such as credit card, personal loans, mortgages, and medical debts, then the debtor must complete and satisfy the Means Test. If the debts are primarily business debts, then the debtor does not need to complete or satisfy the Means Test.

What If You Don't Qualify For Chapter 7 Bankruptcy?

If you don't qualify for Chapter 7 Bankruptcy after your attorney's complete analysis and review, you will need to look at other options and strategies. There may be a strategy that can get you qualified to file Chapter 7 Bankruptcy later. For more information, click here.

If You Have More Questions

Please contact us if you have more questions or are ready to move forward and start the process of becoming debt-free. Remember, we are here to help you resolve your debt problems, so call us now!

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