Each year, hundreds of thousands of people (i.e. consumers) file for chapter 7 bankruptcy. However, not everyone who files — or who wants to file — will have their application accepted. This is because there are five requirements that must be met:
#1: Filer Eligibility
Only the following categories of people can apply for consumer chapter 7 bankruptcy:
- married couples who wish to make a joint filing
- sole proprietors who have personal liability on some business debts
- 50% owners of a business partnership with someone other than their spouse, and who have personal liability on some business debts
Corporations, partnerships (except the kind noted above), and LLCs cannot file for consumer chapter 7 bankruptcy. Instead, they must file as a business, which is a different process.
#2: Recent Bankruptcy Discharge
Individuals cannot file for consumer chapter 7 bankruptcy if they have been discharged from chapter 7 bankruptcy protection within the last 8 years. Note that the clock starts ticking when the previous chapter 7 filing was made — not when the bankruptcy was eventually discharged.
#3: Bankruptcy Dismissal
Contrary to what some people have been led — or rather misled — to believe, having a bankruptcy dismissed within the last 180 days does not automatically render a new filing inadmissible, unless it was due to any of the following reasons:
- violating a court order
- abusing of the bankruptcy system (as determined by the court)
- making a fraudulent bankruptcy filing (e.g. maxing out credit cards just prior to a filing in order to wipe out the debt)
- requesting a dismissal because a creditor asked for the automatic stay to be lifted
#4: Means Test
This process involves comparing an individual’s monthly income vs. the median family income for their respective state (each state differs). If their monthly income is below the state median, then they have passed the means test. If their monthly income exceeds the state median, then they must further determine if they pass or fail the means test.
This further determination involves calculating all sources of income and qualifying expenses, and establishing the amount of disposable income. If this amount is below a threshold, then they have passed the means test. If it exceeds the threshold, then they fail the means test. In this situation, if the individual still wishes to file for bankruptcy, then they can only do so through a chapter 13 filing.
#5: Credit Counseling
Everyone who files for consumer chapter 7 bankruptcy must receive credit counseling from an agency that is approved by the government (the course is available in-class and online). It is not necessary to take this counseling prior to a filing. However, it must be taken at least 180 days prior to discharge.
To learn more about the different tests and requirements involved in filing for consumer chapter 7 bankruptcy, contact the Law Office of Charles H. Huber today. We have more than 30 years of experience filing consumer bankruptcy cases. Our experience is your advantage!