While Chapter 7 is the most common type of bankruptcy, not all debtors are eligible for Chapter 7.
As people struggle with credit card debt, medical expenses and mortgages, a number of Americans choose to file for bankruptcy as a way to gain freedom from their overwhelming financial burdens. According to U.S. Court statistics, more people filed for Chapter 7, or liquidation bankruptcy, than any other type of bankruptcy. Approximately 535,047 people filed for Chapter 7 in 2015, while 301,705 people filed for Chapter 13, according to U.S. Courts. Chapter 7 bankruptcy allows people to eliminate much of or all of their debt by liquidating certain property and/or assets, depending on the case. However, not all people are eligible to file for Chapter 7 bankruptcy, and some may be forced to transfer their case to Chapter 13, which involves a debt reorganization plan.
Meeting the state means
In order to qualify for Chapter 7 bankruptcy, debtors must have an income that is less than the state median. If the applicant’s income is at or above the state median, he or she must pass the state means test. The test calculates applicants’ monthly income and then compares it to their monthly expenses. The result cannot equate to more than 25 percent of the applicant’s unsecured debt.
Previous bankruptcy filings and counseling courses
The debtor cannot file for Chapter 7 if he or she failed to appear in court on another bankruptcy filing case within 180 days of refiling for bankruptcy. Furthermore, each debtor must complete a credit counseling course within 180 days of submitting his or her bankruptcy paperwork. After filing, applicants must complete an approved debtors’ education course. These courses are designed to help applicants explore potential alternatives to bankruptcy, as well as develop a budget that may keep them from getting into financial turmoil in the future.
Debtors must attend the meeting of creditors, submit all paperwork, meet specific deadlines and adhere to any other requirements set by the trustee who is appointed to the case.
Transitioning to Chapter 13
If a debtor is considered ineligible to file for Chapter 7, he or she may have the case transferred to a Chapter 13 bankruptcy. Rather than discharge certain outstanding debts, applicants will be required to come up with a financial plan to repay the creditors involved in the case.
Getting help through the process
Filing for bankruptcy can be overwhelming and a little intimidating. You may want to seek counsel from an attorney who fully understands bankruptcy law. Not only is a lawyer helpful throughout the bankruptcy process, he or she can help ensure you submit the proper paperwork and make the deadlines that are essential to your case.