Who Can File for Chapter 7 Bankruptcy?
Learn about eligibility rules for Chapter 7 -- including the new "means test."
Filing for Chapter 7 bankruptcy can be a powerful tool for dealing with overwhelming debt. But it isn't available to everyone. Here are some situations in which you will not be allowed to file for Chapter 7.
You Have Enough Income to Repay Your Debts
Under the old bankruptcy rules, the bankruptcy judge had the power to dismiss a Chapter 7 case if he or she thought the debtor had sufficient disposable income to fund a Chapter 13 repayment plan. There were no hard and fast rules dictating when a judge should dismiss a case on these grounds -- it depended on the facts of the case and the attitude of the judge.
Now that the new bankruptcy law has gone into effect, however, there are clear criteria that dictate who will be allowed to stay in Chapter 7 bankruptcy -- and who will be forced to use Chapter 13 bankruptcy if they want to file. Disabled veterans whose debts were incurred during active duty and people whose debts come primarily from the operation of a business get a fast pass to Chapter 7. All others must meet the requirements set out below.
How High is Your Income?
Under the new rules, the first step in figuring out whether you can file for Chapter 7 is to measure your "current monthly income" against the median income for a family of your size in your state. Your "current monthly income" is your average income over the last six months before you file. If your income is less than or equal to the median, you can file for Chapter 7.
If your income is more than the median, however, you must pass "the means test" -- another requirement of the new law -- in order to file for Chapter 7.
Do You Have Enough Disposable Income to Repay Some Debts?
The purpose of the means test is to figure out whether you have enough disposable income, after subtracting certain allowed expenses and required debt payments, to repay at least a portion of your unsecured debts over a five-year repayment period.
Page 1 of 2
Next Page
Copyright 2007 Nolo
