Woman calculating her finances to qualify for chapter 7 bankruptcy.

Who Can File for Chapter 7 Bankruptcy?

By Derek Prosser

Chapter 7 bankruptcy has the potential to give a debtor a fresh start. A fresh start means a new financial beginning free from most, if not all, of your outstanding debts.  This can be an appealing option, especially in today’s climate. After an individual debtor receives a Chapter 7 bankruptcy discharge, the only debts that remain owed are for secured assets/liens, as well as any priority debt that was included in the case (i.e. child support, recent taxes, etc.).   As soon as you file for Chapter 7 bankruptcy, you have protection against creditor collection efforts and harassment, such as phone calls, collection letters, lawsuits, and wage garnishment. The typical Chapter 7 bankruptcy only lasts about 3 to 5 months until a debtor receives his or her discharge paperwork.  While all of these Chapter 7 benefits may sound great, not everyone is eligible for Chapter 7 bankruptcy.  Read more about who can file for Chapter 7 bankruptcy and contact the experienced bankruptcy lawyers at Toronjo & Prosser Law to find out if you qualify.

Filing for Chapter 7 Bankruptcy

The major test as to who can file for Chapter 7 bankruptcy is the bankruptcy “Means Test.” The Means Test was implemented to determine whether the household income is low enough to qualify for a Chapter 7 bankruptcy filing. This test was designed to prevent some income households from taking advantage of Chapter 7 bankruptcy protection, and in those cases, steer them into a chapter 13 repayment plan. Chapter 7 is intended for those who don’t have enough disposable income and cannot make monthly payments on outstanding debt obligations. For those people with enough disposable income each month to make monthly payments, Chapter 13 bankruptcy is usually the best alternative.

To be clear, however, you do not have to be completely destitute in order to qualify for Chapter 7 bankruptcy. You may still earn a fairly significant monthly income and still qualify.  However, that income must be counterbalanced with significant expenses such as mortgage payments, auto loan payments, as well as taxes and other expenses. The means test first looks at your current monthly income to see if it falls above or below the state median income for a household of comparable size. If it falls below the median income for the state, then you qualify for Chapter 7 bankruptcy. If it falls above, you do not automatically qualify for Chapter 7 bankruptcy, but there is still a chance that you could end up qualifying.

If your average monthly income over the past six calendar months falls above the state median income, then the means test will calculate your disposable income. Disposable income is determined by subtracting certain deductible monthly expenses from your current monthly income. If you have enough disposable income each month to pay at least a portion of your outstanding unsecured debts, such as credit card bills, you may not qualify for Chapter 7 bankruptcy. Your disposable income must fall below a certain level in order to qualify for Chapter 7 bankruptcy.

Dallas Bankruptcy Attorney

It can be difficult to find out whether or not you qualify for the critical protections offered by Chapter 7 bankruptcy. Toronjo & Prosser Law is here to help. We can evaluate your current financial situation to see whether or not you qualify for Chapter 7 bankruptcy and discuss your options going forward. Let us help you get that fresh financial start. Contact us today.

About the Author
Derek Prosser understands that clients need help and need answers and that in order to properly address those concerns, clients need to deal with an attorney first and always, not just an assistant or paralegal.  By effectively counseling from the outset of a case, Toronjo & Prosser Law can anticipate and address potential problems before they arise, as opposed to when they’ve already surfaced (the “Counsel Later” approach), and, in the end, strive for a seamless representation.