Chapter 7 bankruptcy can seem preferable to chapter 13 for many people, since you won't have to repay any of your debts under chapter 7. This gives you the means to start with a fresh slate financially. Not everyone qualifies for chapter 7, though. The following guide can help you determine if it is a viable option for you.
The Means Test
You must prove that you do not have the means to repay your obligations in order to qualify for chapter 7 bankruptcy. This is done in part by using a formula known as the means test. The basic formula consists of averaging your income over the last few months and then removing the vital monthly expenses, like housing and utilities, from this number. If the remainder, which is considered disposable income, is too high, then you do not qualify for chapter 7 and you will need to file chapter 13 instead.
Exceptions of Note
There are a few exceptions that mean you don't have to pass the means test to qualify. These include the following:
Nonconsumer debts. If most of your debts are nonconsumer debts, such as debts from a business, tax debts, or student loan debts, then you may qualify outright.
Military vets. Veterans with disabilities may be excluded if most of the debts were incurred while they were on active duty. Reservists and National Guard members are also excluded from the means test requirements if they were on active duty when the debts stacked up.
Not all debts are eligible for a chapter 7 bankruptcy, so to qualify you must also have eligible debt. Examples of debt that isn't eligible include those listed below:
Tax or federal debts, including student loans
Private student loans
Debt due to fraud
If the bulk of your debt falls into one of the above categories, then chapter 7 isn't the correct choice unless there is undue hardship, in which case an exception to the eligibility may be granted.
There are a few other requirements you must meet before you can file. You must attend credit counseling before filing and become educated on debt so you do not have to file bankruptcy again in the future. You also cannot file if you have undergone either chapter 13 or chapter 7 bankruptcy recently, since there is a waiting period before you can file again.
For more help in determining your eligibility, contact a firm such as Shoemaker & Dart P.S. Inc.