Chapter 7 bankruptcy can offer individuals and married couples who are struggling with overwhelming debt a chance to eliminate most of their unsecured debts and to benefit from a fresh financial start. However, not everyone qualifies for Chapter 7, so if you need a debt relief opportunity, it’s important to research whether you can take advantage of this particular approach before getting your hopes up.
Eligibility is determined by a combination of income, assets, debt type and previous bankruptcy filings. A good rule of thumb is that aspiring filers who don’t earn a lot of income will likely qualify for Chapter 7 bankruptcy and that those who earn a decent, steady income will likely need to explore Chapter 13 bankruptcy as an alternative.
Determining your potential eligibility for this type of bankruptcy
The first step in determining eligibility for Chapter 7 bankruptcy involves taking the means test, which compares your income to the median income for a household of the same size in your state. If your income is below the median, you will likely qualify for Chapter 7 without further scrutiny. If your income is above the median, the means test becomes more complex, factoring in allowable expenses to assess your disposable income. If your disposable income is too high, you may be required to file under Chapter 13 instead, where you repay a portion of your debts over time.
Another eligibility concern is your prior bankruptcy history. If you have benefitted from a Chapter 7 discharge of your debts in the past eight years or a Chapter 13 discharge of your debts in the past six years, you may not be eligible to file for Chapter 7 again until those periods have passed. Additionally, if a court previously dismissed a bankruptcy case due to fraud or a willful failure to comply with court orders, you may face a waiting period or be barred from filing altogether.
Navigating Chapter 7 eligibility can be complex, and each person’s financial situation is unique. Consulting with a skilled legal team is the best way to determine if you qualify and whether Chapter 7 is the right choice for your unique financial needs, circumstances and future goals.