Chapter 7 bankruptcy is available to individuals, married couples, corporations, and partnerships.
Your eligibility to file Chapter 7 bankruptcy, as opposed to Chapter 13, is determined by several factors I’ll outline below.
How does your income stack up?
There is something called the means test that is applied to your household income to determine whether you qualify to file for Chapter 7 bankruptcy. The first part of the test compares your current monthly income (an average taken from the six months before filing) with the Pennsylvania state median income. The latest Pennsylvania median income numbers are as follows:
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Source: U.S. Census Bureau.
Eligible sources of income include the following:
- Wages, salary, tips, bonuses, overtime, pay, and sales commissions
- State disability insurance
- Worker’s compensation
- Unemployment compensation
- Rental income
- Gross income from a business, profession, or farm
- Regular child support or spousal support
- Pension and retirement income
- Interest, dividends, and royalties
- Annuity payments
You don’t have to include income tax refunds or payments from Social Security retirement.
If your monthly income falls equal to or below the median, you can file for Chapter 7. If your income exceeds that number, you still have a chance to pass the second part of the means test, below.
Are you able to repay some of your debt?
If your income exceeds the state median income, you can then look at how much disposable income you have leftover after paying “allowed” monthly expenses. (This would include rent and food. Eyelash extensions, not so much.)
If the court determines that you have a certain amount of income left over to pay back your unsecured debts, it will dismiss your Chapter 7 filing.
Have you discharged any debts in bankruptcy within the past 6-8 years?
If you have received a Chapter 7 bankruptcy discharge within the past 8 years, or had debts discharged under a Chapter 13 repayment plan within the past 6 years, then you can’t file Chapter 7. The clock starts ticking on the date you filed for your previous bankruptcy.
Did you do the credit counseling thing before filing?
To file Chapter 7 bankruptcy, you must participate in credit counseling with a court-approved agency in the 180 day period before filing your case.
The purpose of the counseling is to help you determine whether you have other options besides bankruptcy to pursue. Once you finish the counseling requirement, you’ll get a certificate of completion to submit to the court along with your filing.
Have you defrauded any of your creditors?
If the bankruptcy court feels that you have attempted to defraud your creditors in any way, they may dismiss your case.
This is what looks like fraud to the court:
- You transfer property to your friends or family to keep it from being used in your bankruptcy case.
- You mutilate or destroy property that might have value to the bankruptcy trustee.
- You purchase luxury items on your credit cards in the time leading up to your filing. The court can look back into your finances for up to 10 years, but the lookback period is usually 1-2 years.
- You lied about your income or debt on a credit application.
When you sign your bankruptcy filing, you sign under “penalty of perjury,” so providing false information might not only lead to the dismissal of your case, but also to your being charged with perjury or fraud.
How can I know for sure if I’ll qualify?
If this all seems overwhelming, it’s because it really can be unless you’re an experienced bankruptcy lawyer. It’s free to chat with me about your options – you can call or text me at 215.551.7109, or drop me a line.