Individuals who are faced with rising debt they can no longer pay may consider filing for chapter 7 bankruptcy. However, individuals need to understand that certain eligibility requirements must be met before this action may be taken. Following is a general overview of the requirements.
The Means Test
Any person wishing to obtain relief through chapter 7 bankruptcy must submit to a means test to prevent abuse of existing bankruptcy law. This test is conducted when the current monthly income of the debtor is great than the median for the state. When the aggregate monthly income over a period of five years, minus certain allowed expenses, comes to more than $12,850 or one-quarter of the individual’s unsecured nonpriority debt, which must be a minimum of $7,700, the debtor is not allowed to make use of this option.
Who May Qualify for Relief?
Individuals are often allowed to file for chapter 7 bankruptcy, but the means test described above will be conducted to determine if the individual is eligible for this type of debt relief. The amount of debt owed and the solvency of the debtor is not taken into consideration at this time. One exception to this rule is individuals who have has a prior bankruptcy petition dismissed within the past 180 days as a result of the debtor failing to appear in court or comply with court orders cannot file using this option. The same is true if the debtor opted to voluntarily dismiss his or her prior case after learning creditors requested relief from the court in order to obtain property for which they had existing liens.
Furthermore, before filing for chapter 7 bankruptcy, the debtor is required to receive credit counseling. This counseling must take place with the 180 day period before the bankruptcy petition is filed and must be obtained through a credit counseling agency approved by the court. In emergency situations, this requirement may be waived. In addition, when there are insufficient agencies approved by the court to provide the counseling, the court may waive this requirement. Any debt management plan developed during the counseling must be submitted to the bankruptcy court as part of the process.
If you believe chapter 7 bankruptcy is the right option for you, consult a bankruptcy attorney today to begin the process. Doing so will give you a fresh start so you can move forward with life unencumbered by overwhelming debt. Individuals will typically receive a discharge of certain debts, although not all debts will be erased. This includes any liens on property, unpaid child support, and more. Contact an attorney for clarification of what will and will not be discharged to provide peace of mind before the process begins.