Do I Qualify for Chapter 7 Bankruptcy?

To qualify for Chapter 7 bankruptcy, your disposable income must be low enough to pass the means test.

By , Attorney

Chapter 7 bankruptcy provides relief from debt by wiping out most unsecured debt and giving the debtor a fresh start. But not everyone qualifies for Chapter 7 bankruptcy. To prevent consumers from abusing the system, filers must meet eligibility requirements before receiving a debt discharge in a Chapter 7 case. In this article, you'll learn about the main requirements you'll need to meet before qualifying for Chapter 7 bankruptcy relief.

Previous Chapter 7 and Chapter 13 Bankruptcy Filings

You can wipe out debts only so often, so if you've filed for bankruptcy before, you'll need to determine whether enough time has passed to file again. Here's how it works.

If you filed a previous Chapter 7 petition and received a discharge, you must wait eight years from the filing date of the prior bankruptcy before filing another one. If you filed a previous Chapter 7 case but didn't complete it and didn't receive a discharge, you can file a new Chapter 7 at any time, provided the court in the previous case didn't bar you from filing again (and you otherwise qualify for Chapter 7).

If you previously filed and received a discharge in a Chapter 13 bankruptcy case, you must wait six years from the date you filed the Chapter 13 before filing for Chapter 7. If you did not complete or receive a discharge in the previous Chapter 13 case, you can file a Chapter 7 case at any time assuming you otherwise qualified for Chapter 7.

Find out more information about the frequency with which you can file for bankruptcy.

Chapter 7 Prebankruptcy Credit Counseling

Before you file for Chapter 7 bankruptcy, you must complete a prebankruptcy credit counseling course conducted by an approved agency. You must complete this course within six months before the date you file for bankruptcy. Once the counseling is complete, you will receive a certificate that you must file with the court. You must also complete a debtor's education course after you file your case.

Learn about the differences between the credit counseling and debtor education requirements in bankruptcy.

Qualifying for Chapter 7 Bankruptcy by Passing the Means Test

Bankruptcy debtors must pass a Chapter 7 "means test" to qualify for Chapter 7 bankruptcy. To pass the means test, you must have little or no disposable income. The means test compares your average monthly income for the six months preceding your bankruptcy against the median income of a similar household in your state. If your income is below the median, you automatically qualify.

The median income figures vary from state to state. In most cases, people who are having financial difficulties are making little or no income qualify, so the means test does not pose a problem. You can check whether your gross income qualifies you for Chapter 7 by reviewing the most current figures posted on the U.S. Trustee Program webpage.

Keep in mind that not everyone has to take the means test. Find out if you can assert an exception to the means test requirement. Read on to learn more about filing for Chapter 7 bankruptcy.

If Your Income Is Above the Chapter 7 Bankruptcy Median

Many debtors worry that they won't qualify if their income is above the median allowed by their state. It isn't necessarily true. You'll have a second chance to qualify.

If your income is above the median, you'll take the second portion of the means test and deduct expenses from your income to determine whether you have any income remaining to repay creditors. But keep in mind that you can only use your actual expenses for particular items. For many expenses, the means test only allows you to deduct the national or local standard living allowance. You'll find the national and local expense figures on the U.S. Trustee Program website in the means test area.

If deducting all allowable expenses from your income results in little or no disposable income, you can receive a bankruptcy discharge in Chapter 7 bankruptcy. If your expenses are less than your net income, you probably won't be entitled to a Chapter 7 discharge because the "presumption of abuse" will arise--the presumption that you have funds to repay creditors.

While this might seem simple enough, the best way to get an accurate determination of your qualification chances is to speak with an experienced bankruptcy attorney. You can also learn more by reading how to qualify for Chapter 7 when your income is high.

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