Qualifying Factors of Chapter 7 Bankruptcy

Qualifying for a Chapter 7 bankruptcy may be much more difficult since new laws were enacted in 2005. Under the Abuse Prevention and Consumer Protection Act, individuals who wish to file for bankruptcy protection must first pass the Chapter 7 “means test”.

How to Qualify for Chapter 7

The means test involves checking to ensure that your income is below the median in the state where you reside. If your average monthly income is below the state median during the six-month period prior to filing, you should be able to qualify for Chapter 7. This figure is calculated based upon data obtained from the census bureau and takes into account the size of your family. You are more likely to qualify if you have a large family you are financially responsible for.

If an individual does not qualify under the standard Chapter 7 means test, the law allows you to deduct certain types of expenses from your disposable income. After deducting relevant expenses, you should multiply your monthly disposable by 60. If the total is less than $6,675, you can file under Chapter 7. If your income is between $6,575 and $10,950, you will need to calculate your unsecured debt. If your disposable income is less than one quarter of this figure, you will qualify.

Which Debts Are Discharged?

Chapter 7 is often referred to as the liquidation bankruptcy. Most debts can be discharged completely to give the debtor a fresh start. All unsecured debts can be discharged along with the following:

• Personal loans
• Credit card debts
• Auto accident claims not involving a DUI
• Medical bills
• Business debts, including leases
• Income taxes that are over three years old
• Past due rent and utility bills

If a debtor wishes to reaffirm a debt, such as a home or automobile, they must do this before the discharge occurs. A written reaffirmation agreement must be signed and filed with the court.

Debts That Cannot be Discharged

Not every single debt qualifies for discharge under Chapter 7. There are several types of debts that cannot be discharged, which include:

• Payments for alimony and child support
• Any recent tax bills
• Criminal fines or restitution required
• Student loans
• Penalties assessed by the government other than tax penalties
• Damages arising form willful or malicious injury to people or their property

In addition, any cash advances that you make on your credit cards 60 days prior to filing for bankruptcy will not be allowed for discharge.

Advice From a Bankruptcy Lawyer

The bankruptcy laws frequently change and they can be difficult to understand. If you are considering filing for bankruptcy, you should obtain advice from an attorney who specializes in this field. They will be able to go over all of your assets and liabilities to see which Chapter best suits your needs.