Bankruptcy laws have changed a bit over the years, which may lead some people to believe it is more difficult to file for bankruptcy than before the change in laws. Actually, this is a misconception and the changes in bankruptcy laws have little effect on whether a person qualifies for Chapter 7 or would be required to pursue Chapter 13 bankruptcy.
In fact, the qualifications for Chapter 7 are based on a person’s financial situation and history. In general, Chapter 7 bankruptcy is reserved for people experiencing significant financial hardships and has large amounts of unsecured debts such as medical bills and credit cards.
Anyone filing for Chapter 7 must first pass a means test, which is a test to evaluate the financial position on the filer. The means test examines the monthly expenses in relation to the monthly income. In other words, the test is used to determine if a potential filer has enough income to repay their debts.
A person will be eligible for Chapter 7 if (a) they do not earn enough income (after expenses) to repay debts or (b) their income is less than the median income of their state. However, if the test determines a person does have the income needed to repay their debts or has an income higher than the state’s median income, they will be eligible for Chapter 13 bankruptcy only.
Who Does Not Qualify?
The bankruptcy laws state that a person may not be eligible for Chapter 7 if they had a previously discharged debt (a) under Chapter 7 within 8 years or (b) under Chapter 13 within 6 years. Similarly, if a person had their bankruptcy case dismissed, they may not be eligible to file for Chapter 7 for at least 180 days. Typically, the case was dismissed due to a violation of a court order, failure to complete the required credit counseling course or the court suspected there to be fraudulent actions in the filing process.