This blog recently discussed the value of Chapter 7 bankruptcy as an option for struggling consumers and others wishing to enjoy a fresh financial start. Those considering Chapter 7 personal bankruptcy protection may wonder how they can qualify for it.
Chapter 7 bankruptcy is a liquidation bankruptcy process that allows the filing party to liquidate non-exempt assets to repay creditors and obtain debt relief. Certain assets and categories of assets, subject to limits, are exempted from the process. As is true of any bankruptcy process, an automatic stay goes into effect that protects the filing party from creditor collection actions during the bankruptcy process.
The means test is used to determine if the filing party qualifies for Chapter 7 bankruptcy. The bankruptcy court will look at the filing party’s average monthly income for 6 months prior to the bankruptcy filing and then compare their average monthly income to the state’s median income. If the filing party’s income is equal to or less than the state’s average median income, they can qualify to file for Chapter 7 bankruptcy. The court then considers, after deducting allowed expenses, if the filing party has disposable income left to repay some of their unsecured debt.
It is helpful to know what types of income the court considers in making its determination and any exceptions to the process of qualifying for Chapter 7 bankruptcy. Filing parties who do not qualify can take heart that other personal bankruptcy options are available to help them. It is possible to switch bankruptcy options based on the needs, or changing needs, of the filing party.
Qualifying for Chapter 7 bankruptcy can be important for many struggling consumers coping with overwhelming debt and the stresses and strains that accompany it. Because of how important personal bankruptcy relief can be to many consumers, it is essential to understand how to qualify for this important legal resource.