The first question clients usually ask is if they are eligible to file a chapter 7 bankruptcy. The new bankruptcy laws have adjusted who is eligible to file personal bankruptcy to keep people from taking advantage of the system. Curious if you qualify for ch 7?
Individual – In order to file ch 7, you have to be an individual, businesses are not eligible. You can be married or single. You can file with your spouse or without them. If you file without your spouse you will still have to disclose their income in order to determine if you are eligible to file chapter 7.
Income – Chapter 7 filers must complete a means test that takes your income and expenses into account to determine if you are able to pay a portion of your debt. If your income is below the state median for your family size, as determined by the bankruptcy guidelines then you are eligible for ch 7.
If your income is above the median you may still qualify for ch 7 by providing additional information on your expenses to determine your disposable income. Your living expenses will then be equated to standard allowances the IRS has set for housing, groceries and other normal expenses. You may also be able to include extraordinary expenses you may have due to medical and other conditions that will have to be explained to the bankruptcy court.
If you are left with over $10,000 in disposable income you cannot file a chapter 7 bankruptcy, but if it’s less than $6000 you qualify. If your income is inbetween those limits and you can’t afford to pay at least 25% of your total unsecured debt, then you can file chapter 7, but if you can afford to pay it, then you do not qualify. As you can see, the means test is confusing if you have disposable income because your income is higher than the median, so you should discuss your eligibility with a bankruptcy attorney.
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