Do I Qualify for Chapter 7 Bankruptcy Protection?

Those who are overwhelmed by debt and have explored every other avenue have one question when they examine bankruptcy: Do I qualify for chapter 7 bankruptcy? There is no easy answer for that question, because there are several elements to consider. However, there are a number of helpful means to obtain the answers and make a wise decision about whether bankruptcy is the right choice.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is considered straight bankruptcy, or liquidation. It provides the debtor with the opportunity to have most of their debts discharged, or erased. However, it also may require the debtor to liquidate some of their property to pay creditors as much as possible before that discharge. Federal and state laws provide exemptions to allow a filer to protect some of their property. Filers with few assets and sufficient exemptions may be able to protect most or all of their personal property. Once the bankruptcy process is complete, chapter 7 filers may still face foreclosure or repossession of their secured debts if they do not make regular payments. While a bankruptcy discharges debts, it does not discharge liens, and a lien holder may still be able to foreclose if a secured debt is in default.

Qualifying for Chapter 7

After the bankruptcy reforms of 2005, it became more difficult to qualify for chapter 7 bankruptcy. The hope was to prevent filers from taking advantage of creditors and the system. At that time, a means test was instituted to ensure that only those with extremely low income or extremely high monthly debts could qualify to have their debts discharged in chapter 7 bankruptcy.

The Means Test

The first element to consider in determining whether a debtor qualifies for chapter 7 bankruptcy is the means test. Each state has established a median income that potential filers must first compare to their income for the last six months. If their income is above the median income for their location, they must proceed to the means test. If their income is below the median income for their area, they qualify for chapter 7 bankruptcy.

Those who take the means test must calculate what their monthly disposable income is, using a means calculator. Such calculators can be found on many websites throughout the internet, and there are guidelines in the application for chapter 7 bankruptcy to help as well. They help the filer determine what their allowable monthly expenses are, then subtract that amount from their monthly income, and calculate their monthly disposable income. If it qualifies for their state standards, they may file a petition for chapter 7 bankruptcy.

Those who fail the means test may still have the opportunity to file for chapter 13 bankruptcy. That process helps them reorganize their finances and debts, formulate a repayment plan which may include lowering some debt amounts and eventually discharging some others, and potentially become debt-free in the future, if they complete the plan.

Getting Legal Help with Qualifying for Chapter 7 Bankruptcy

Chapter 7 bankruptcy is not for everyone. It is important to make sure that the benefits outweigh the negative consequences, producing enough debt relief to make it the wise choice for them. In order to make that decision and to determine if they qualify for chapter 7 bankruptcy, they should contact a legal expert. Bankruptcy attorneys are well versed in guiding filers through the decision-making process, determining if they qualify for bankruptcy, and assisting them in completing the bankruptcy process successfully.