Qualifying for Chapter 7
Filing Chapter 7 bankruptcy is an option for debtors who have little or no income, own little or no property and a have a huge amount of unsecured debt. In Chapter 7, debt may be discharged once all non-exempt property has been liquidated to pay creditors. However, there are parameters in qualifying for Chapter 7 bankruptcy.
To file for Chapter 7 you must first pass the means test, obtain credit counseling and complete a debtor education course before any debts will be discharged. Although the bankruptcy rules are in place to protect debtors from losing everything, qualifying for Chapter 7 has specific guidelines. The first is the means test, which we will discuss in detail.
The means test is in place as a tool for qualifying for Chapter 7 to ensure this form of bankruptcy protection to those who are so heavily in debt they have no means of making even the smallest payment. The first step in the means test is to compare your income and family size to the median income of your state. This information is readily available online. By doing your homework prior to contacting a bankruptcy attorney, you will save time and be more informed regarding qualifying for Chapter 7.
The next step in qualifying for Chapter 7 bankruptcy is calculating disposal income and unsecured debts. Disposable income is what is left after subtracting allowable expenses, as set by the IRS, from your gross income. If your disposable income, spread over the next five years is less than $6,000 you more than likely will be determined as qualifying for Chapter 7. If your disposable income over the next five years is $10,000 or greater, another calculation must be made to determine eligibility. When comparing disposable income to total unsecured debt, it is determined you have less than twenty five percent income to debt ratio, you will probably have passed the means test.
As of 2005, all bankruptcy filers, regardless of which chapter, must have consulted with an approved credit counseling service sometime in the six months prior to filing bankruptcy in order to be considered.