The Requirements For Chapter 7 Bankruptcy: Are You Eligible To File?

Basic Eligibility Requirements

To file for Chapter 7 bankruptcy, one of the key eligibility factors is determining your ability to pay your debts. Typically, you must either earn less than the median income for your state and family size or show that your monthly expenses exceed your monthly income. This helps to establish whether you’re financially eligible to discharge your debts through Chapter 7, rather than a repayment plan under Chapter 13.

No specific debts make you ineligible to file for Chapter 7 bankruptcy, but certain debts are non-dischargeable. For example, student loans are generally not dischargeable, though there are rare exceptions. Certain taxes can be discharged, while others cannot, and debts related to willful and malicious injuries are non-dischargeable. Fraudulent acts and obligations like child support and alimony also cannot be discharged. While you can still file for Chapter 7, these debts would remain after the bankruptcy process.

The Means Test

The Means Test is a tool used to determine eligibility for Chapter 7 bankruptcy. In 2005, Congress, led by Senator Grassley, passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which introduced the Means Test to ensure uniformity across the country. The test first compares your income to the median income for a household of your size in Iowa. If your income is below the median, you’re automatically eligible for Chapter 7 and do not need to complete the test. If your income is above the median, you’ll need to go through the Means Test, which factors in your income and allowable deductions to assess your ability to repay your debts. The results determine if you qualify for Chapter 7 or if you’ll need to consider Chapter 13 instead.

If you fail the Means Test, there’s still some hope. While failing creates a presumption that Chapter 7 relief is inappropriate, this presumption can be rebutted. This means you can challenge it based on your specific circumstances. Every case is unique, and factors like unexpected expenses or changes in your financial situation can influence the outcome. If you’re unable to rebut the presumption, you still have the option of seeking relief under Chapter 13, where you may be required to make smaller, manageable payments based on your financial situation.

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