Eligibility for Chapter 7 Bankruptcy

Chapter 7 bankruptcy, or “liquidation bankruptcy” is the most commonly used form across the United States. The frequency of this form and all other forms has increased in recent years, bringing many changes to state specific laws and increased availability of legal aid for the process. Bankruptcy is a complicated process no matter what, and even the initial procedure to determine eligibility is an intricate one.

What Is Chapter 7 Bankruptcy?

The overall idea of Chapter 7 bankruptcy is to relieve all debts, seemingly making it the obvious choice for debts. However, the major downside to this relief is that all assets of the individual or business who successfully files for Chapter 7 must be turned over to the bankruptcy court. Though there are exceptions to what is taken away, such as one’s home, car, insurance and retirement to certain limits, the loss can still be great for many.

Once in control of the bankruptcy court, the repossessed assets can be liquidated to pay creditors as much as possible. In addition, upon filing for chapter 7, or any other form of bankruptcy, an “automatic stay” is grants further relief by legally restricting creditors from any further collection tactics towards the filing party.

Who Is Eligible for Chapter 7 Bankruptcy?

To be eligible for Chapter 7 bankruptcy, the “means test” must be passed. This is a vital step within the bankruptcy process, and can be checked roughly beforehand by the individual by examining their finances on their own. If an individual is unsure if they will pass or not, there is no reason not to attempt. For cases that do not pass, there are still further bankruptcy options that the bankruptcy court or the filer can request a transition to. The main component of the test is income. Individuals with income of more than the median in their state are automatically ineligible for Chapter 7 bankruptcy. In unique, such as a debtor with many dependents to support, an income higher than the median may still be eligible.

Requirements for to Claim Chapter 7

Prior to filing for any form of bankruptcy, there are a few major requirements. Credit counseling classes must be taken, with proof of completion to be filing along with the bankruptcy. In addition, all forms require the same four things in the petition. They are a report of all liabilities and assets, current income and expenditures, executory contracts and unexpired leases, along with a final statement of overall financial affairs.