When people ask us about bankruptcy eligibility, they are often most concerned with whether or not they qualify for Chapter 7 bankruptcy– that is, the kind of bankruptcy that wipes out their debts.

This post describes Chapter 7 eligibility criteria.

Please also see this post with more general information about bankruptcy eligibility.

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What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is what most people think of when they consider filing for  bankruptcy.  In a Chapter 7, most debts are wiped out and the filer is not required to pay anything back to his or her creditors.

The process is quick– usually only 3 or 4 months for an average case.

What determines my Eligibility to File Chapter 7?

Chapter 7 eligibility usually depends on how much income you have, what your expense are, the value of your assets, and the amount and nature of your debts.  Your filing must also be “in good faith,” and you must meet some administrative criteria (discussed below.)

Am I Eligible under the Chapter 7 Bankruptcy Income Rules?

To demonstrate your Chapter 7 eligibility under the income rules, you usually need to show:

    1. Your “hypothetical” monthly income and expenses do not leave you with much disposable income (as calculated by the Means Test);
    2. Your actual income and expenses do not leave you with much disposable income each month (as shown when you disclose your actual monthly income and expenses);
    3. Your filing is in “good faith”- this can mean many things, and should be discussed carefully with your attorney.
    4. Some exceptions apply to (1) and (2) above.
    5. Even if you “fail” the Means Test, you can still qualify for a Chapter 7.  Do not rely on online Means Test calculators.  They do not take into account all relevant case law and the specifics of your situation.

Have You Previously Received a Bankruptcy Discharge?

    1. Chapter 7 discharge:  You are not eligible for a Chapter 7 bankruptcy case if you received a Chapter 7 bankruptcy discharge within the past EIGHT years.
    2. The dates are calculated from filing date to filing date.
    3. Example: if you filed your previous Chapter 7 bankruptcy on August 1, 2001 and received your discharge on February 1, 2002, you are eligible to file another Chapter 7 bankruptcy on August 1, 2009.
    4. Chapter 13 Discharge: You may not file a Chapter 7 bankruptcy case if you received a Chapter 13 bankruptcy discharge within the past SIX years (again calculated filing-date-to-filing-date.)

Have you Had Another Bankruptcy Dismissed Within the 180 Days Prior to Filing the Current Bankruptcy?

You are not eligible to file for Chapter 7 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days because (1) you violated an order of the Bankruptcy Court, (2) the court found the previous filing  fraudulent or abusive, or (3) you requested dismissal after a creditor asked for relief from the automatic stay.

Have You Accumulated Debts, Transferred Assets, or Concealed Assets in Anticipation of Filing Bankruptcy?

If you have run up debts in anticipation of filing bankruptcy and / or concealed assets, you will not be eligible to file bankruptcy.

The following are examples of transactions that can render you ineligible to file and / or to discharge your debts in bankruptcy:

    1. Making false statements about your income or debts on a credit application,
    2. Changing the way title is held to your house, car, or bank accounts,
    3. Giving or selling assets to your friends or relatives to hide them,
    4. Running up debts for luxury items when you had no way to repay, or
    5. Concealing property or money from your spouse during a divorce proceeding.

Have you Taken the Required Credit Counseling Course?

Before you file for Chapter 7 Bankruptcy, you must take a Credit Counseling course.

You can take the class online or over the phone.  There are many vendors who offer the course.  We can give you information about vendors during your bankruptcy intake meeting.

Are you Current on all Tax Filings?

Your bankruptcy attorney will need to review tax returns from at least the past three years.  Additionally, you may be eligible for refunds on unfiled tax returns.  If you are, your attorney needs to know this so he or she can exempt the anticipated refunds.