Requirements for Declaration of Chapter 7

Chapter seven bankruptcy is one form that generally allows the most debt to be discharged, or erased. However, a number of requirements limit those who are eligible. In fact, as a result of the Bankruptcy Abuse Prevention and Consumers Protection Act of 2005, it is even more difficult to qualify for chapter 7 bankruptcy. There is another option; and chapter 13 bankruptcy has many benefits that might be to the advantage of many filers. Knowing the elements of both options is wise preparation for choosing the best alternative for a debtor’s particular circumstances.

Bankruptcy Alternatives

There are two types of bankruptcy available to most individuals and families. These include:

• Chapter 13 bankruptcy, which is better suited for those with property and equity in that property that they want to protect. They must also have a significant amount of monthly income with which to pay off their debts under a new court-approved repayment plan.

• Chapter 7 bankruptcy, which is better suited to those with little property and a great deal of consumer, or unsecured, debt. This plan may include liquidation of some non-exempt property, if there is any, but provides a quicker conclusion of the bankruptcy action.

Eligibility for Chapter 7

Under the new bankruptcy laws, there are a number of requirements for filers to be eligible for chapter 7 bankruptcy:

• The filer must be a veteran who incurred their debts during their active duty in the military

• The filer must have incurred most of their debts from the operation of a business

• The filer must have an average monthly income over the previous 6 months that is below the median family income (for a comparable family) in the filer’s state

• The filer must pass a means test to determine if they have enough disposable income to repay a portion of their monthly bills. If so, they are not eligible for chapter 7 bankruptcy but may be eligible for chapter 13

• The filer must not have filed chapter 7 bankruptcy within the last 8 years

• The filer must not have filed chapter 13 bankruptcy within the last 6 years

• The filer must not have had a bankruptcy petition dismissed in the last 6 months, which generally occurs as a result of fraudulent behavior or violation of a court order

Getting Legal Help with Qualifying for Chapter 7 Bankruptcy

Not everyone is eligible for chapter 7 bankruptcy, but the requirements are detailed and complicated. The debtor may not be aware of all the requirements or details involved, but if they consult a bankruptcy attorney to help them explore their options, they may learn that they do qualify for chapter 7. On the other hand, they may learn that they qualify for chapter 13 bankruptcy and that that form will be more appropriate to their needs.