If you are one of the millions of American’s struggling financially, you may consider your options for filing bankruptcy. Chapter 7 bankruptcy is one of the more common types of bankruptcy for consumers. It is considered a “liquidation bankruptcy,” and most unsecured debts can be discharged, including credit cards, personal loans, and medical bills.
But how do you know if you qualify for Chapter 7 bankruptcy? Here are some tips for determining if you are eligible.
Am I Eligible for Chapter 7 Bankruptcy?
In order to qualify for Chapter 7 bankruptcy, you must pass the “means test.” This is a test that analyzes your income and expenses. The means test is designed to qualify individuals who cannot pay their debts. High-income individuals or businesses generally will not qualify for Chapter 7 bankruptcy.
When you complete the test, you answer questions about your income and expenses. Your income is compared to the median income in your state. If your monthly income is less than the state median income for your household size, then you pass. If this happens, you do not have to complete the remainder of the test.
If your income is higher than the median income, then you must complete the test and provide more information about your expenses. This is done to calculate your “disposable income,” or the amount of income you have left each month after paying for necessary expenses. If you have a substantial amount of disposable income, then you will not qualify for Chapter 7 bankruptcy, because, in theory, you would be able to pay your creditors out of that residual income.
If you do pass the means test, then your next step is speaking to a bankruptcy lawyer. There are several things that the court will look at to finalize your eligibility, including your income and expenses, household size, and other factors. A bankruptcy lawyer can guide you through this process to make sure that you are accurately completing necessary forms. He or she can then guide you through the Chapter 7 bankruptcy process if you are eligible.
If you need help with debt relief, please contact our firm. We are the leading bankruptcy attorneys in San Diego.