ELIGIBILITY FOR CHAPTER 7 BANKRUPTCY

Are you Eligable for Chapter 7?

Under the old bankruptcy law almost everyone in America could file Chapter 7 bankruptcy. The new bankruptcy law includes a formula test, called the means test, to determine who may be eligible to file Chapter 7 bankruptcy. The means test applies only to individuals whose debts are primarily consumer debts. These include credit card debts, car loans, or primary residence mortgages. A large number of individuals are forced into bankruptcy because of non-consumer debt such as failed business debts, large business related judgment or delinquent mortgages on investment real estate. Individuals whose debts are primarily business or investment debts, or people who owe primarily other non-consumer debts such as taxes or student loans, are exempt from the means test.  These debtors may file Chapter 7 bankruptcy regardless of their income and expenses. If the debtor’s family income is less than the median income for similarly sized Florida households, the debtor is exempt from the means test. As of October, 2008, the Florida median income for a two-person household is approximately $52,000. The median income for a single person is approximately $41,000.

The Means Test

The means test is designed to evaluate whether the debtor is capable of paying back a substantial part of his debts in a repayment plan through Chapter 13 bankruptcy. The means test measures income and allowable expenses. Based on the results of the formula, if the debtor does not have sufficient net monthly income to repay debts, debtor is eligible to file Chapter 7.  If the results of the means test show that debtor can repay debts, then debtor is not eligible for Chapter 7 bankruptcy unless debtor can prove "special circumstances" of hardship such as recent loss of employment or some type of medical problem.  In such cases, debtor may be eligible for relief in Chapter 13 bankruptcy.

The means test formula is very complex and several of its important terms are counter-intuitive. The formula incorporates a variety of government statistics from several sources as well as information about each debtor’s financial situation. Calculations under the formula are difficult to do without a professional computer program designed for bankruptcy attorneys to prepare bankruptcy petitions.

Debtor may not obtain a discharge in a Chapter 7 bankruptcy within 8 years of the filing date of a previous bankruptcy in which debtor received a Chapter 7 discharge.  The prohibition is 8 years from the previous filing date rather than the previous discharge. There is a 6 year wait after a previous Chapter 13 discharge. A debtor may obtain a discharge in a new Chapter 7 cases as long as 6 years have passed since the filing of a previous Chapter 13 case in which a discharge had been granted.  There is no time restriction on getting a discharge in a new chapter 7 chase after a previous Chapter 13 case in which a discharge was granted if 100% of the allowed unsecured claims where paid, or where the actual payments under the previous Chapter 13 plan comprised at least 70% of the allowed unsecured claims in that case.

Click on the means test to learn more about its important terms and definitions.   

Contact a Chapter 7 Bankruptcy Attorney at Dominguez & Associates, P.A.