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How Do I Qualify for a Chapter 7 Bankruptcy?

If your debts have become too difficult to manage, you’re probably considering bankruptcy. This is an important decision that could have serious financial and personal consequences for years to come. Before committing to the bankruptcy process, you need to determine which type you’ll want to file.

For most individuals, Chapter 7 and Chapter 13 would be the two types to consider. If you’re looking to get a financial “fresh start” as quickly as possible, you should consider filing for Chapter 7 if you are able to do so.

What Is Chapter 7 Bankruptcy?

Also known as “liquidation,” Chapter 7 bankruptcy allows you to fully discharge many types of personal debts. These types of debts include:

  • Car loans
  • Medical bills
  • Credit card bills
  • Personal loans
  • Utility bills
  • Evictions and Delinquent Amounts Owed under Certain Leases

Thanks to rules concerning exempt property, the majority of those who file Chapter 7 bankruptcy can keep much of their personal property. Despite keeping most, if not all, of their property during the Chapter 7 bankruptcy process, individuals can still completely erase many of their debts. Not all debts are dischargeable under Chapter 7 though, but the majority of consumer debts are. An experienced bankruptcy lawyer in Montgomery or wherever you reside can let you know which debts can be eliminated.

In contrast, someone filing for Chapter 13 bankruptcy can’t immediately discharge his or her debts. Instead, they create a repayment plan that spans three to five years. During this time, the individual will make regular payments toward paying off the debt. At the end of the repayment plan, any eligible debts remaining get discharged.

It’s easy to see why Chapter 7 is very popular, as it allows for the complete discharge of debts within a few months. But not just anyone can file for Chapter 7 bankruptcy.

Chapter 7 Bankruptcy Eligibility Requirements

Several conditions must exist for you to qualify for Chapter 7 bankruptcy. However, the single most important eligibility requirement is passing the “means test.” Subject to a few exceptions, anyone wishing to receive a Chapter 7 discharge must pass this test.

The means test works by examining your average monthly income for the past six months and comparing it to the median income of a comparable household in your state. If your income falls below the state median, then you pass the means test.

If your income is above the median, you can still try to pass the means test by factoring in your monthly expenses. After accounting for monthly expenses, if you have little to no disposable income leftover then you can still pass the means test and file for Chapter 7 bankruptcy.

Bottom Line

Chapter 7 bankruptcy offers an excellent way to get a “fresh start” in terms of your finances. But as good as it sounds, it may not be the best type of bankruptcy for you. For example, if you are facing foreclosure on a house you want to keep then Chapter 13 bankruptcy might be better. There’s also the possibility that you’ll be better off not filing for bankruptcy at all. To help you decide on a course of action, you should always contact a local bankruptcy attorney where you live for a consultation before filing anything with the Bankruptcy Courts.