Debtor under Chapter 7

Under Chapter 7 of the Bankruptcy Code, there are mainly two types of debtors.  They are 1) the individual debtor, and 2) the business, partnership, or corporation debtor.

Individual Debtor: A normal household individual with his or her residence, business or property in United States, can be an individual debtor under Chapter 7 if he or she is in a situation where the debtor is unable to pay off his/her financial obligations.  However, an individual qualify under a test before he or she can qualify as a debtor under Chapter 7.  This test is called the Means Test.  The purpose of this test is to ensure that the individual is not abusing the bankruptcy system.  According to the Means Test only those individuals whose monthly income is below the state median income qualify to become Chapter 7 debtors.  There is no maximum or minimum amount limit for the individual’s debt to qualify.  Additionally, an individual can be a Chapter 7 debtor only if he or she has undergone credit counseling through an approved agency.  That counseling must have been taken during the 180 days prior to filing.[i]

Sometimes, an individual is not allowed to file if it is determined that the individual filed for bankruptcy during the preceding 180 days and that earlier filed petition got dismissed due to the individual’s willful failure to appear in court, comply with court rules or the individual’s voluntary dismissal of the earlier case soon after the creditors requested relief from the court.[ii]

Business/Partnership/Corporation Debtor: When a business is unable to fulfill its financial obligation, it can file for bankruptcy under Chapter 7.  Business debtors are not required to undergo the Means test.  There is a prescribed amount limit for a business to qualify as a debtor under Chapter 7.

US Bankruptcy Courts

 


[i] 11 USCS §§ 109,111.

[ii] 11 USCS §§ 109(g),362(d) and (e)


Inside Debtor under Chapter 7