Do You Qualify for a Chapter 7 Bankruptcy?

If you are in serious debt trouble, filing for Chapter 7 bankruptcy might offer some relief. While this could be beneficial, not everyone will be able to qualify for it. Here are a few things to consider about whether you will qualify for a Chapter 7 bankruptcy.

What Is Chapter 7?

Chapter 7 is a type of bankruptcy that many individuals seek to file. With this bankruptcy, you can essentially wipe out your debts after the court takes some of your assets. The court issues an "automatic stay" order, which means that creditors can no longer attempt to collect debts from you. A trustee of the court then reviews your financial information and sells certain assets to collect money for your creditors. After you are done with chapter 7, all of your personal debts except for things like child support, taxes, and student loans will be eliminated.

Income Limits

Chapter 7 bankruptcy was designed to provide sanctuary for those with lower incomes. It was meant to help those that have low incomes and incur debts that they cannot afford to pay. Because of this, the court is going to look at your income level in order to determine whether you are qualified for Chapter 7 bankruptcy. In order to determine if your income is low enough, they are going to compare your income against the median income for a family of the same size in your state. They will look at recent data to determine what the median income in your state is. If your income falls below this level, you will be able to file for Chapter 7 bankruptcy. If your income is above this level, it does not necessarily mean that you will not be able to file for Chapter 7 bankruptcy. In that case, you will need to move on to a means test to determine if you can qualify.

Means Test

Each state has its rules for how the means test works. However, the basic idea with all means tests is the same. The court is trying to determine if you have enough disposable income to repay some of your debts. You will need to gather all of your financial statements and expense reports to do the necessary calculations.

The court is going to tell you which expenses are allowed to be deducted from your income. For example, they will allow you to deduct your mortgage payment, your car payment, student loan payments and a certain amount for groceries every month. After all of these monthly deductions are calculated, they will subtract this amount from your monthly income. The difference between the two numbers represents the amount of disposable income that you have. If your disposable income is above a certain amount, the court will not allow you to file for Chapter 7 bankruptcy protection. If your disposable income is below this threshold, then you can file for Chapter 7.

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