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How do I qualify for Chapter 7 bankruptcy?

This blog recently discussed some of the relief Chapter 7 bankruptcy may provide for individuals struggling with overwhelming debt. Those considering bankruptcy options to help them enjoy a fresh financial start may wonder how they can qualify for Chapter 7 bankruptcy. Eligibility for Chapter 7 bankruptcy is based on the Chapter 7 means test. To qualify for Chapter 7 bankruptcy, the filing party must satisfy the two-part test.

The first part of the means debt looks at the filing party's average monthly income for sixth months prior to filing for bankruptcy. This is then compared to the median family income in the filing party's state. If the filing party's income is less than or equal to the state's median income, they qualify to file for Chapter 7 bankruptcy. A variety of different sources of income are considered, while other sources are excluded, so it is helpful to know which income is considered and which is not considered.

The second part of the means test is evaluated if the filing party earns more than the median income in their state. The second part of the test examines the filing party's income, after deducting allowable expenses, to determine if the filing party has enough disposable income to repay some of their unsecured debt through the Chapter 13 bankruptcy process, in which case the filing party does not qualify for Chapter 7 bankruptcy but may qualify for a Chapter 13 bankruptcy repayment plan. The filing party may also be able to establish special circumstances if they do not qualify for Chapter 7 bankruptcy including recent unemployment, unusually high rent or a serious medical condition.

For those concerned that they may not qualify to file for Chapter 7 bankruptcy, they do not have to worry because other bankruptcy options for different situations also exist, such as Chapter 13 reorganization bankruptcy. Bankruptcies may also be converted depending on the circumstances. In addition, in some circumstances, it may be possible to bypass the means test; thus, it is important to know what those circumstances are and if you qualify. The bottom line is that different bankruptcy options exist to help those struggling with overwhelming debt enjoy the relief of a fresh financial start.

Source: Bankruptcy.findlaw.com, "The Bankruptcy Means Test," Accessed June 26, 2017

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