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Who Can File

Although Chapter 7 is the most popular type of bankruptcy for consumers, not everyone is eligible to receive Chapter 7 relief.  After the overhaul of the bankruptcy laws in 2005, it’s harder to qualify for chapter 7 relief. The qualification is based on your income and family size relative to the state you are filing in. Further, you may be barred from filing Chapter 7 bankruptcy because of previous bankruptcy filings or fraudulent actions.

Generally, to qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. However, a discharge under Chapter 7 is only available to individual debtors, not to partnerships or corporations.

The biggest barrier to qualify for Chapter 7 is the “means test”. If a debtor’s current monthly income is more than the state median, the law prescribes a “means test” to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than  $11,725, or 25% of the debtor’s non priority unsecured debt, as long as that amount is at least $7,025. The debtor can rebut a presumption of abuse by showing special circumstances that justify additional expenses or adjustments of current monthly income. If the debtor is not able to do so, the case will be converted to chapter 13 with the debtor’s consent or it will be dismissed.

Subject to the means test for individual debtors, relief is available under chapter 7 irrespective of the amount of the debtor’s debts or whether the debtor is solvent or insolvent.  However, an individual cannot file under chapter 7 or any other chapter if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.  Additionally, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless s/he has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

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