Chapter 7 bankruptcy, also known as liquidation bankruptcy, offers individuals the opportunity to eliminate most unsecured debts by liquidating non-exempt assets.
Although this process can provide significant financial relief, not everyone qualifies for Chapter 7.
In this article, we will discuss the key qualifications and requirements you need to meet to file for Chapter 7 bankruptcy.
The means test is a primary qualification requirement for Chapter 7 bankruptcy, designed to ensure that only those genuinely in need can benefit from this form of debt relief.
The test has two parts:
a. Median Income Comparison
First, your average monthly income over the past six months is compared to the median income for a household of the same size in your state. If your income is below the state median, you qualify for Chapter 7 bankruptcy.
The median income figures are periodically updated, so it’s essential to check the most recent data when evaluating your eligibility.
b. Disposable Income Calculation
If your income is above the state median, you must proceed to the second part of the means test, which calculates your disposable income.
This involves subtracting allowed expenses, such as housing costs, transportation, utilities, and other essential expenses, from your income.
If your disposable income is insufficient to repay a significant portion of your unsecured debts over the next five years, you may still qualify for Chapter 7 bankruptcy.
Before filing for Chapter 7 bankruptcy, you are required to complete a credit counseling course from an agency approved by the U.S. Trustee’s Office.
This course must be completed within 180 days before submitting your bankruptcy petition.
The purpose of the course is to help you understand your financial situation, explore alternatives to bankruptcy, and develop a budget plan.
Your eligibility for Chapter 7 bankruptcy may be affected by any prior bankruptcy cases. Specifically, you are not eligible for Chapter 7 if:
a. You received a bankruptcy discharge in a previous Chapter 7 case within the past eight years or a Chapter 13 case within the past six years.
b. A previous bankruptcy case was dismissed within the past 180 days for any of the following reasons: willful failure to comply with court orders, voluntarily requesting dismissal, or if the court determined that you attempted to manipulate the bankruptcy system.
When filing for Chapter 7 bankruptcy, you must provide accurate and complete financial information about your income, expenses, assets, and debts.
Failure to disclose all relevant information or providing false information can result in the dismissal of your bankruptcy case or even criminal charges.
To qualify for Chapter 7 bankruptcy, you must be willing to surrender non-exempt assets for liquidation.
Exempt assets, which vary by state, are protected from liquidation and typically include items necessary for basic living, such as a modest home, a vehicle, household goods, and clothing.
Non-exempt assets, such as luxury items or second homes, may be sold by the bankruptcy trustee to repay your creditors.
Meeting the qualifications for Chapter 7 bankruptcy requires passing the means test, completing credit counseling, having no recent bankruptcy discharges or dismissals, providing accurate financial information, and being prepared to liquidate non-exempt assets.
If you are considering Chapter 7 bankruptcy, it’s crucial to consult with a bankruptcy attorney who can help you evaluate your eligibility and guide you through the process.
It’s important to hire an experienced bankruptcy attorney as one of the steps to take when you’re facing bankruptcy and you need solid guidance and representation.
This is because there are many different types of bankruptcy. Only an experienced lawyer will know which one would work best for your specific situation.
It might seem like it makes sense to do this yourself. But most people don’t have the time or patience to understand all of the intricate details involved in bankruptcy.
That means they make mistakes by not choosing the right type, or by not filling out paperwork correctly. Both things could lead to delays and ultimately hurt your chances of getting any debt relief at all.
This is not a journey to take lightly, but it is also not one to take alone. If you need to file for bankruptcy, reach out to us today to start your journey with us.
If you want to learn more about the options you have and the steps to take, call us for a free consultation.
Parker and DuFresne