Do you qualify for bankruptcy? There are a lot of things to consider, and we try to break it down for you. At Upsolve, we provide free Chapter 7 bankruptcy services for those in need of a fresh start.
Written by Kristin Turner, Harvard Law Grad.
Updated November 10, 2020
Do I qualify for bankruptcy? That is a question many Americans ask themselves each day. If you're struggling with debts you can't pay, you may qualify to file for debt relief under Chapter 7 of the Bankruptcy Code.
What is a Chapter 7 Bankruptcy Case?
Before you begin the process to determine if you can file a Chapter 7 bankruptcy case, it helps to understand what a Chapter 7 case involves. A Chapter 7 bankruptcy case allows a filer (called the "debtor") to get rid of most, if not all, or their unsecured debts. In most cases, the debtor gets rid of all debt while keeping all property.
A Chapter 7 bankruptcy filing can eliminate debts including:
Credit card debt
Unpaid rent or lease payments
Old personal income taxes
Old utility bills
Most judgment debts
Some debts are non-dischargeable in bankruptcy, including alimony, child support, and student loans.
Secured debts must be paid if you want to keep the property you used as collateral to obtain the loan. However, you can get rid of secured debt in Chapter 7 by surrendering the property.
By surrendering secured collateral through a Chapter 7 case, you get rid of the debt without worrying about owing the creditor a deficiency judgment if the sales proceeds from the property don't cover the full loan balance.
Filing a Chapter 7 bankruptcy case helps you get out of financial trouble when you find yourself hopelessly struggling to pay debts you can't afford to pay. A Chapter 7 bankruptcy discharge gives you the freedom you need from financial problems so that you can focus on a better future for you and your family.
Who Can File for Bankruptcy Relief? Do I Qualify for Bankruptcy?
Individuals, couples, and businesses can qualify to file for bankruptcy relief. Businesses usually always qualify to file a Chapter 7 bankruptcy petition if the business is shutting down. But, consumers (filing by themselves or with their spouse) must meet several requirements if they want to discharge debts in a Chapter 7 bankruptcy.
Do I Qualify for Bankruptcy Under Chapter 7 If I Already Filed a Bankruptcy Case?
If you have filed a prior bankruptcy case, you must determine if you qualify to receive another bankruptcy discharge. While it's possible to file multiple bankruptcy cases in a life time, a certain amount of time must pass between cases before someone can ask for another discharge. If your prior case didn't result in a discharge, there's no time limitation but you may have to deal with a shorter than usual automatic stay.
The time that has to pass between cases depends on which chapter of the Bankruptcy Code the cases are filed under. This article contains a detailed overview of all time limits for both Chapter 7 and Chapter 13 bankruptcy cases.
Do I Qualify for Bankruptcy if I Have a Job?
Another qualification for discharging consumer debts in a Chapter 7 is an income limit. If you're asking “Do I qualify for bankruptcy even if I have a job,” the answer is maybe.
Chapter 7 is typically reserved for individuals who don't make enough money to pay their regular living expenses and their debts. Some people qualify for Chapter 7 even if they have some disposable income after paying necessary living expenses each month.
Before you file a Chapter 7 bankruptcy petition, you need to complete a Means Test. The means test calculation is formula to answer the question, “Do I qualify for bankruptcy under Chapter 7.”
Do I Qualify for Bankruptcy if I Have No or Low Income?
The bankruptcy means test compares your family income to the to the median household income for your household size. The means test calculation determines your average income based on the past six months to arrive at an current monthly income.
Your average annual income is compared to the median annual income of a household of your size in your area. If your income is below the average income level, you meet the income qualification to file Chapter 7.
Do I Qualify for Bankruptcy if I Have Some Income?
If your household income exceeds the median income level established for a household in your area, you must complete the second section of the Mean Test to answer your question, “Do I qualify for bankruptcy under Chapter 7.”
The second section of the Means Test allows you to deduct certain household expenses from your average monthly income. Once you deduct all allowable monthly expenses, you may qualify to file under Chapter 7 if your disposable income is not enough to make meaningful monthly payments in a Chapter 13 bankruptcy.
If your income exceeds the maximum amount of disposable income in Chapter 7, you may want to consider filing for debt relief under Chapter 13. If most of your debt is business debt, you don't have to complete the Chapter 7 means test before filing bankruptcy.
Do I Qualify for Bankruptcy Under Chapter 7 if I Own Assets?
Another issue many people worry about is whether they might lose their home, car, or other property if they file bankruptcy. The potential for losing property is one of the reasons people do not even bother asking “Do I qualify for bankruptcy.”
The good news is that most Chapter 7 debts keep all their property while getting rid of debt. By using bankruptcy exemptions, you can protect your property from the bankruptcy court and your creditors.
Do I Qualify for Bankruptcy to Get Out of Debt?
Many people ask this question each day because they are struggling to keep their heads above water. It's extremely easy to get upside-down when you face financial hardships. Losing your job, becoming ill or injured, going through a divorce, or losing your spouse can cause you to experience financial trouble.
Upsolve is a non-profit organization. Our free tool helps folks who need bankruptcy relief, but can't afford to hire a bankruptcy lawyer to help them. We want to help you get a fresh start, so you can move past a financial crisis. We do not charge for our services. You can watch videos of past users who have found debt relief without hiring a bankruptcy attorney.
Bankruptcy attorneys provide a valuable service to the public. However, some people can't afford to pay a law firm for help. With Upsolve's free tool, you can join the millions of people who have gotten a second chance with bankruptcy even though you can't afford to pay a bankruptcy attorney.
- American Bankruptcy Institute. (2002). Bankruptcy by the Numbers - Chapter 7 Asset Cases. ABI Journal. Retrieved August 4, 2020, from https://www.abi.org/abi-journal/chapter-7-asset-cases