How Can I Qualify for Chapter 7 Bankruptcy?

If you are interested in filing bankruptcy or getting more information about it then the first thing to know is that regardless of what type of case you would like to do your attorney should cover all of your options with you.  This will normally include Chapter 7 and Chapter 13 cases.  If you have yourself set on a Chapter 7 you should know that you do not automatically get to file a Chapter 7 case.  You have to qualify.

The first question is whether your debts are consumer debts.  If more than 50% of your debts are consumer debts then you have a consumer bankruptcy.  Many debts are excluded from the consumer debt calculation.  If you have tax debts or business debts you personally guaranteed then those will not be considered consumer obligations.  In some cases you might be able to convince a court that medical debts that were involuntary, say from an accident or unexpected illness, are not consumer debts.  If the total of these debts outweigh your personal loans, credit cards, student loans, or home mortgages then you can skip the means test.  

If your debts are more than 50% consumer debts you must put together your last six months of income and fill out the means test.  If you are below median income for your state and you do not have substantial income left over in your budget you should be able to file a chapter 7 case.

If you are above median income then you have to fill out the means test.  The means test uses the IRS guidelines to substitute for some of your actual expenses and in a Chapter 7 case it does not allow you to take a deduction for voluntary retirement contributions.  If you can pass the means test and you do not have substantial income left over in your budget you should still be able to file a chapter 7 case even though you are above the median income for your state.

Even if you fail the means test you might be able to file a motion to deviate from the test or supply some information as to why your circumstances would warrant setting aside the means test and allowing you to continue with a Chapter 7 case.  An example that often occurs is when someone loses a job a month before filing but their last six months of income would indicate they do not qualify for a chapter 7.   A similar example is when someone is working  but takes a reduction in pay.  The income going forward will be much less than what the means test might show.  In both of these examples a motion to deviate would be appropriate.  

Although there are other issues with Chapter 7 bankruptcy the basic one is whether or not you can get by the means test and qualify.  If you have any questions about filing a bankruptcy please reach out to one of our bankruptcy attorneys in Wichita, Topeka, Lawrence, or Overland Park.  We have free consultations for consumer bankruptcy cases and we would be happy to talk to you.  

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