How To Qualify For Chapter 7 Bankruptcy

Posted on: 5 March 2015

If you are considering filing for Chapter 7 bankruptcy, you may wonder if you are even qualified to file Chapter 7. You can file for Chapter 7 bankruptcy if your income is not over a certain amount and you pass a means test set up by the bankruptcy court. The means test needs to prove your income is low enough for you to file for Chapter 7 bankruptcy. If your income is too high, you may file for Chapter 13 bankruptcy instead, because Chapter 7 was set up for individuals who are unable to otherwise fulfill their debt-paying obligations. This article will discuss Chapter 7 bankruptcy and the importance of your income when it comes to dissolving your debts. 

Understanding the Means Test

The means test was designed to only allow individuals who truly have a difficult time paying their debts to file for Chapter 7. If individuals have a decent monthly income and have enough disposable income to pay off what they owe, they will be directed to file Chapter 13 bankruptcy.

The test will take a specific monthly expense from your current monthly income (which will be your average income over the six months prior to filing bankruptcy), and will arrive at your disposable monthly income. The higher your disposable monthly income is, the more likely Chapter 7 bankruptcy will not be allowed. 

Passing the Means Test

Passing the means test and qualifying for Chapter 7 bankruptcy doesn't necessarily mean that filing for Chapter 7 is the right answer for you. You should consider other options first, like determining whether or not Chapter 13 may be better. Also, you may want to consider debt consolidation or credit counseling. Also, talk with a Chapter 7 bankruptcy attorney to understand exactly what the next steps will be before you make a final decision. 

Failing the Means Test

Failing the means test means you have no choice but to file Chapter 13. Chapter 13 bankruptcy requires you to make monthly payments over a span of three to five years, and you have to adhere to a strict monthly budget. Chapter 13 bankruptcy is a good way to handle specific money issues, and it does allow you to better manage your money. The court will work with you on what will be an affordable monthly allotment to pay. Speak with a firm, like Rafool, Bourne, & Shelby, P.C., to determine what the right options are for you.