This section is designed to describe the major categories of people who can file for bankruptcy under Chapter 7 of the bankruptcy code. While not all people are permitted to file for bankruptcy under Chapter 7, most people can if they choose to do so.
There are many categories of people who will always be allowed to file for Chapter 7 bankruptcy under the code, barring fraud or the most unusual of circumstances. Some categories of people who are almost always allowed to file under Chapter 7 include:
- Debtors who have primarily business debts to discharge as opposed to personal debts.
- Debtors who meet the status of a disabled veteran under the statute.
- Debtors who earn less than the median income for the state, adjusted for both the number of dependents in the debtor’s household and also averaged over the six months leading up to the bankruptcy filing.
In addition to the categories of people listed above, some filers who do not meet any of the above listed tests can still file for Chapter 7 bankruptcy under the code. The most common reason that a person might not meet the standard tests is that the person earns more than the median state income and has primarily consumer (not business) debts. In this case, the person would need to pass what the bankruptcy code calls the “means test.”
The means test was designed to determine whether any given debtor can pay back some of the debt he owes over time in connection with a Chapter 13 plan. As a practical matter, the means test is designed to force some debtors who prefer to file a Chapter 7 bankruptcy case into Chapter 13 instead, where they will be required to pay back a portion of what they owe to creditors over 3 to 5 years. The application of the means test is a highly-complex calculation involving certain income and expenses applied in different proportions to calculate your payment ability, and it is advised that you contact an attorney if you fall in this category of people and want to file a Chapter 7 bankruptcy case. If you pass the means test, you will likely be able to file a Chapter 7 bankruptcy case. If you fail the means test, then you may be required to file a Chapter 13 bankruptcy case instead.
In addition to the above tests, there are a few additional factors which determine eligibility to file a Chapter 7 bankruptcy case:
- A person cannot file a Chapter 7 bankruptcy case if he obtained a discharge in a separate Chapter 7 case within the past 8 years, or a Chapter 13 case within the past 6 years, unless you paid at least 70% of your unsecured debts in the prior Chapter 13 case.
- A Chapter 7 bankruptcy case cannot be filed if a prior Chapter 7 or Chapter 13 case was dismissed in the past 180 days due to the violation of a court order or your request for dismissal after a creditor requested relief from stay from the court.
- A Chapter 7 bankruptcy case can be dismissed after filing if it is found that the debtor has defrauded his creditors or seeks to defraud the bankruptcy court.
The law regarding eligibility to file a Chapter 7 bankruptcy case can be very complicated, and it is highly recommended that the advice of an attorney be obtained before proceeding with filing. This is especially true in the event that a filer exceeds the median income for the state and wants to file Chapter 7 bankruptcy nonetheless. Note that should a filer be unable to file for bankruptcy under Chapter 7, he may still be able to file for bankruptcy under Chapter 13.
