• 13
  • October
    2011

In our previous post, we looked at the eligibility requirements for Chapter 13 bankruptcy. Here we'll take a look at Chapter 7 and its eligibility requirements.

As we have already mentioned, Chapter 7 is more difficult to qualify for, because of the filer's ability to walk away from substantial amounts of debt. Although a corporation, partnership, or other business entity may qualify for Chapter 7, we'll keep our focus here in personal bankruptcy, since discharge of debts is only available to individuals.

The big hurdle in qualifying for Chapter 7 bankruptcy is the "means test." The means test applies to a debtor whose current monthly income exceeds the state median. The purpose of the means test is to determine whether the Chapter 7 filing was presumptively abusive. It is considered so if the debtor's monthly income exceeds certain parameters, though the debtor may rebut that presumption by showing justifying an adjustment of current monthly income or that special circumstances justify the additional expenses. If the presumption of abuse is not overcome, the debtor will be switched over to Chapter 13 bankruptcy.

If an individual passes the means test, it doesn't matter how much or what kinds of debt they have. But they must also meet some other requirements. Similar to Chapter 13, Chapter 7 filers must not have had a bankruptcy petition dismissed within the last 180 days due to their willful failure to appear before the bankruptcy court or follow through with its orders, or if the debtor voluntarily dismissed their case after creditors petitioned the court for relief in regard to property upon which they held a lien.

Chapter 7 filers must also have had credit counseling from an approved agency within 180 days of filing. The same exceptions apply in emergency situations.

It should be kept in mind that Chapter 7 filers are not always able to discharge their debt. Further, some types of debt cannot be discharged. Property liens are not discharged either. These are all important things to remember when considering Chapter 7 bankruptcy.

Source: Online: http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx; United States Courts website; gives an overview of the Chapter 7 bankruptcy process.