Can Anyone File Bankruptcy under Chapter 7?

Financial problems plague everyone from time to time. You may find your problems overwhelming, but you have an amazing range of alternatives to consider. You may readjust debts, negotiate settlements, and discharge all debts through bankruptcy. Each option is different, with unique advantages and disadvantages. You best choice may depend on qualification.

The allure of a quick Chapter 7 discharge is undeniable. Creditors penalize everyone who makes late payments, settles debts, and works out compromise agreements. If penalties are automatic, why drag out the process and make pointless payments? In reality, you may not qualify for a Chapter 7 discharge.

The first few requirements are easy. You must be a U.S. citizen, conduct business in the U.S., or own property in the U.S. or territories. The U.S. Code assumes military personnel reside in the U.S., and usually considered residing at a U.S. home base even when serving overseas. In addition, you must complete an approved credit-counseling course during 180 days before you file. The court requires a certificate of completion.

The next few requirements are somewhat more complicated. You cannot file if you received a prior Chapter 7 discharge in the last eight years. You cannot file if you discharged debts in a Chapter 13 case in the last six years, unless you paid your unsecured creditors at least 70% of the balances owed. You cannot file if the court dismissed a prior case in the last 180 days for prejudice. In most instances, prejudicial dismissals are the result of wrongdoing, misconduct, or an intentional violation of law.

The final qualification is tricky. You must pass the means test.

The means test determines if you qualify for Chapter 7, and if you do not, determines your Chapter 13 payment. The test uses a complicated measure of your income and expenses to determine you disposable income. If your income is over your state’s median income, you fail the first portion of the test. However, you may still qualify using two additional test measures.

Everyone needs help taking the test the first time. The official form required is unnecessarily difficult. The official instructions are brief and provide little guidance for debtors hoping for a favorable result.

To calculate qualification you have two options. The first option is easy and you may complete the test in the privacy of your home, free of charge, as many times as wish. Custom forms are available—designed specifically for debtors—to optimize test results. Categories for deductions are expanded for easy use, including easily followed and understood instructions. In addition, the instructions must include examples to make the test even easier. In effect, these forms minimize income, maximize deductions, and help each person qualify for Chapter 7.

The second option is costly, with a new fee required each time you complete the test. You could retain an attorney to calculate the test for you. If you do, you must pay an attorney fee each time you verify your current status. Expect to pay $200 or more for each test.

This distinction is important because the test result changes each month. You may not qualify today. However, with a few tweaks and adjustments, you may qualify the following month. This flexibility alone makes the first option the best choice.

Dave Clark is an attorney who enjoys writing consumer articles about bankruptcy strategies. In this article, he discussed who may file chapter 7 bankruptcy when requested by a new acquaintance.