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Chapter 7 Bankruptcy: Are You Eligible?

Chapter 7 BankruptcyIn your journey toward financial clarity, there will come a time when you will need to take an honest look at your debt. If you’re lucky, you might be in a position to pay off your debt and improve your financial picture. However, if your debts are far greater than your income, or if you have had a series of misfortunes that have left you financially bereft, you might have no option but to file Chapter 7 Bankruptcy.

What is Chapter 7 Bankruptcy?

Before we talk about what Chapter 7 is, we should discuss what it is not:

Chapter 7 bankruptcy is not a way for people to shirk their responsibilities or defraud their creditors. It is a way for honest people, who have fallen on hard times financially, to eliminate their debts and start over with a clean slate.

Because it is designed to forgive honest debt, there are several criteria you must meet to be eligible to file.

Chapter 7 Bankruptcy Criteria

Because Chapter 7 is reserved for those who truly cannot pay their bills, there are several criteria that you must meet before you can file. The biggest criterion is the chapter 7 means test.

The Means Test

The Chapter 7 means test determines if your income is low enough for you to qualify. The test looks at several criteria including:

  • Is your income higher than the median for a household your size and in your state; and,
  • Do you have enough income, after your monthly expenses, to repay some of your debts?

If you can answer no to both questions, you will most likely be able to file Chapter 7. However, even if you can’t you could still qualify. There are chapter 7 bankruptcy attorneys across the country who can give you more information on the means test.

Although the means test is important, there are other factors that can also determine your eligibility to file.

Prior Bankruptcy

If you have filed for bankruptcy in the past, your ability to file will depend on several factors.

·  If you had successfully filed Chapter 7, you cannot file again for at least eight years;

·  If you had successfully filed Chapter 13, you cannot file Chapter 7 for at least six years;

·  If you had a previous bankruptcy dismissed because you violated a court order, the court ruled your filing was fraudulent, or because you requested a dismissal, you cannot file again for at least 180 days.

Even if you are able to file, a prior bankruptcy could have some bearing on whether or not you can successfully file again. A good bankruptcy attorney can give you the information you need.

Recent Financial Transactions

Earlier we mentioned fraudulent filing. This occurs when the individual wracks up debt with the sole intent of discharging it in chapter 7. While it is rare, unfortunately it does happen; and that is why certain financial transactions could be interpreted by the courts as an attempt at a fraudulent filing.

  • Opening a new credit account shortly before filing
  • Submitting a lot of credit applications shortly before filing
  • Increasing your volume of credit charges, especially for non-essential and luxury items
  • Transferring assets to other people prior to filing

If you have performed any of these activities, you should consult an attorney to prevent the courts from dismissing your case.

The Type of Debt

There are certain debts that cannot be discharged through a Chapter 7 – these include:

  • Student loan debts
  • Court-ordered child support and alimony payments
  • State, local, and federal taxes

If your debts are primarily composed of these elements, you may not be able to file Chapter 7.

Additionally, chapter 7 requires you to relinquish some or all of your non-exempt assets including:

  • Credit cards
  • Financed vehicles
  • Financed or mortgaged real estate

If you need to keep any of these assets, you may not be able to file Chapter 7.

If you are unable to file Chapter 7, there are other forms of bankruptcy that could be available to you. Your best bet is to contact an attorney for information on the types of bankruptcy available, and to determine which type is best for you.

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.


  1. Great job simplifying down bankruptcy. Simply Googling bankruptcy can be intimidating with all the legal jargon you get thrown at you!


  2. It is very interesting that student loan debt is excluded from bankruptcy. Without that provision students would be lining up at the lawyers doors looking for relief. Without the exclusion student loan debt would not be so cheap, or easily obtained. Colleges would have to find a way to make higher education more affordable and sensible for family budgets.

  3. Sometimes you don’t have a choice but be careful, a bankruptcy is nothing to take lightly.

    It will destroy your credit score and could take as long as 10 years to come off your report. The interest rates you are going to be paying by having a low credit score may be just as bad as what you would have paid by negotiating your debt with creditors.

    Great detail in the post.

  4. Usually, people do a couple of things when they are considering this option. Firstly, they may talk to some close friends and/or browse the net. The trouble with each of those methods is that the information is generally imprecise and relatively generic. There are no two situations the same, as everyone has a distinct set of financial scenarios that must be considered in this process.

    Take a look at this website bankruptcyexpertsipswich.com.au they offer free consultation or ring them on 1300 795 575 I’m sure they can help.

  5. I never looked at it as the honest man’s solution. That is actually kind of comforting knowing that it is possible to get another chance. We tend to think that bankruptcy is the end of all dreams when it isn’t http://www.michaelatkinson.com.au

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