Chapter 7 bankruptcy can provide a fresh financial start through a liquidation bankruptcy option. If you are considering this option, however, you may wonder how to qualify. If you do not qualify for Chapter 7 bankruptcy, additional options may be available and the court may convert the bankruptcy to a Chapter 13 bankruptcy if you have a reliable source of income. The point is to not despair because different personal bankruptcy protections and options are available for different situations.
To qualify for Chapter 7 bankruptcy the filing party will have to meet the means test used by the bankruptcy court to determine who is eligible to file for Chapter 7 bankruptcy. If the filing party’s income is too high, they may not be able to file for Chapter 7 bankruptcy but may still be able to file for Chapter 13 reorganization bankruptcy protection instead. The means test looks at the filing party’s average monthly income for 6 months prior to filing for bankruptcy and compares it to the median income in the filing party’s state.
In general if the filing party’s income is higher than their state’s median income, they may not qualify for Chapter 7 bankruptcy. A variety of different sources of income can be considered so it is important to be familiar with the list. If the filing party’s income is higher than the median income in their state, they may still qualify for Chapter 7 bankruptcy if they meet the second part of the means test. The bankruptcy court will seek to determine if the filing party can repay some of their unsecured debts after they have paid all of their allowed expenses which are generally everyday expenses. If the court determines the filing party can repay some of what they owe, they may need to consider Chapter 13 bankruptcy as an alternative.
There are other disqualifying considerations that the filing party should be familiar with so they can avoid them when seeking bankruptcy protection. Personal bankruptcy protections are an important resource and safeguard for struggling consumers which is why they should understand their options and the complexities sometimes associated with the bankruptcy process which is designed to help them enjoy a fresh financial start.
Source: Bankruptcy.findlaw.com, “Who Can File for Chapter 7 Bankruptcy?” Accessed May 9, 2018