To be eligible for Chapter 7, you must meet certain criteria. A Bankruptcy Court may convert your case to Chapter 13 bankruptcy if you do not meet the Chapter 7 requirements. There are two exceptions:
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For disabled veterans who have been on active duty while serving, they can file for bankruptcy to get rid of the debt.
Filers with debts that were primarily incurred from the operation of a business
Notice: Prior to October 17, 2005, the decision of whether a debtor satisfied Chapter 7 requirements was up to a bankruptcy judge. Judges had a lot of discretion in assessing a debtor’s financial condition. According to the old law, many filers chose to have their debt discharged, even though they could repay the debt under a Chapter 13 repayment plan. The current bankruptcy law’s purpose is to eliminate filers who cannot afford to repay some debt.
These are the circumstances where a debtor may not be eligible for Chapter 7.
- Your Income Is Too High
To be eligible for Chapter 7, one must determine if a filer’s income exceeds Chapter 7. A debtor’s eligibility for Chapter 7 is determined by the “means test”. The first part of this test requires that the debtor compare their monthly income, which is the average income for the six months prior to filing bankruptcy. This comparison must be made with the median income in their state.
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These are the eligible monthly incomes:
- Salary, tips, bonuses and overtime pay.
- Gross income from a profession, business, or farm
- Dividends, interest, and royalties
- Rents and income from real estate
- Spousal or child support is required on a regular basis
- Unemployment compensation
- Retirement income and pensions
- Workers’ compensation
- Annuity payments
- State disability insurance
The income tax refunds received and the payments made from Social Security retirement benefits are not required to be included by a filer.
The debtor may file for Chapter 7 if the monthly income of the filer is at least equal or lower than the state’s median. To qualify for Chapter 7, a filer who has a household income that exceeds the state’s median income must pass the second section of the means test.
You Can Repay Some Debt
If the income of a filer is higher than the state’s median income it is necessary for the state to assess how much disposable income they have left after paying monthly expenses such as rent or food. This will determine if the filer is able to repay some of their creditors through a Chapter 13 repayment program.
The court will reject a Chapter 7 filing if the filer has less than a certain income to pay unsecured creditors.
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Debt was previously discharged in bankruptcy
A debtor who has discharged debts under Chapter 7 bankruptcy within the last eight years or under Chapter 13 bankruptcy within six years is not eligible for Chapter 7. The debtor must file for bankruptcy within the last six years to be eligible for Chapter 7.
An Ex-Bankruptcy Case Was Dismissed Within the Last 180 Days
If a Chapter 7 or Chapter 13 bankruptcy case was dismissed within the last 180 days, a filer is not eligible.
The filer violated an order of the court
- The bankruptcy case before was deemed fraudulent or abusive by the court
- After a creditor requested that the court lift the automatic stay, the filer asked for a dismissal.
- The debtor failed to meet the credit counseling requirements
A debtor must enroll in credit counseling within 180 days of filing for Chapter 7. Trustee’s office. Credit counseling helps the debtor to determine if there are other options than bankruptcy. Except for an exception, all debtors must take part in credit counseling. Except for mental incapacitation, physical disability, and active military service, all debtors must participate in credit counseling. After counseling is completed, the debtor will be issued a certificate of completion that he or she can submit to the bankruptcy court for filing.
The Debtor Frauded Creditors
If it is found that the bankruptcy court has been attempting to defraud creditors, a bankruptcy court can discharge a bankruptcy case. These types of actions taken by a debtor within the first few years after filing bankruptcy could be considered fraud.
- The debtor transfers the property to family and friends
- The debtor damages or mutilates property
- The debtor purchases luxurious items
- On a credit application, the debtor lies about his income and debt.
Filer signs bankruptcy papers under “penalty to perjury”. False information can lead to dismissal of the case and possible charges of fraud or perjury against the court. Talk to a bankruptcy lawyer before you file for Chapter 7.
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Stuck in debt? Are you unsure how or when to get out of debt? It doesn’t have all to be overwhelming. You may not achieve the best results if you don’t have a thorough understanding of the law. Contact a local bankruptcy lawyer today to get some assurance.
