Who Qualifies for Chapter 7 Bankruptcy:
Breaking Free from Debt

Chapter 7 bankruptcy can provide a fresh start to persons struggling with debt, but not everyone is eligible for this type of bankruptcy. In order to qualify for Chapter 7 bankruptcy, you must meet certain eligibility requirements. In this article we’ll explain who qualifies for chapter 7 bankruptcy and how you can meet the eligibility requirements. Here’s what you need to know.

In summary, qualifying for Chapter 7 bankruptcy requires: (1) being a person, defined as an individual, partnership, or corporation or other business entity; (2) passing the means test; and (3) attending a credit counseling course and meeting other eligibility requirements.

Click on any of the titles below to jump to the relevant section.

1. Who is a person eligible for chapter 7 bankruptcy?

2. Understanding the Debtor’s Current Monthly Income

3. Means Test

4. Credit Counseling Course

5. Time Restrictions After Receiving a Discharge

6. Restrictions on Re-Filing After Dismissal

1. Who is a Person Eligible for Chapter 7 Bankruptcy?

Under the Bankruptcy Code, a person can file for bankruptcy under Chapter 7 if the person is either a(n):

1. Individual;
2. Partnership; or
3. Corporation or other business entity.

“The term ‘person’ includes individual, partnership, and corporation, but does not include governmental unit . . . .”
11 U.S.C. §§ 101(41).

2. Understanding the Debtor’s Current Monthly Income

If you’re considering filing for bankruptcy, it’s important to understand what “current monthly income” means. Your current monthly income determines whether or not you will need to pass the means test that is discussed after this section.

The term “current monthly income” refers to the average amount of money you receive from all sources on a monthly basis, including your spouse’s income if you’re filing jointly.

This income is calculated based on the six months leading up to your bankruptcy filing date. If you file the required schedule of current income, as most people do, it will be based on the last day of the calendar month before you filed. For example, let’s say you filed for bankruptcy on June 15th, 2023. The last day of the calendar month immediately preceding your filing would be May 31st, 2023. So, if you filed the required schedule of current income, your current monthly income would be based on the average amount of money you received from all sources during the six months leading up to May 31st, 2023. If you don’t file the schedule, the court will determine your current income date for you.

When calculating your current monthly income, any regular payments made by someone else for your household expenses will be included, but certain types of income are excluded. These excluded income sources include benefits received under the Social Security Act, payments to victims of war crimes or international terrorism, and any compensation, pension, pay, annuity, or allowance paid under specific military titles in connection with a disability, combat-related injury, or death of a uniformed service member.

If your yearly income, based on your currently monthly income, is lower than the state median income, then you pass the means test. If your yearly income is higher than the state median income, then you have to complete a form to see whether you pass the means test. The means test is designed to determine whether it would be fair, based on your income, to apply for bankruptcy and have your debts discharged.

As of April 17, 2023, the current monthly income for the states are below. If you make higher than the amounts stated below, then you need to pass the Means Test.

To find the most up to date data, visit https://www.justice.gov/ust/means-testing.

If you are single and make less than $48,603, then you automatically pass the means test in every state as of April 2023.

Form to Determine Current Monthly Income

Chapter 7 Statement of Your Current Monthly Income (Form 122A-1) is the form used to determine your current monthly income when filing for bankruptcy under Chapter 7. Form 122A-1 can be found here.

To help you better understand how to determine who qualifies for chapter 7 bankruptcy, we’ll be using a fictional character named Paul as an example to fill out the statement of current income form. Paul is a 35-year-old software developer who has recently found himself in a difficult financial situation. Due to unexpected medical bills and a decrease in his income, Paul has been struggling to keep up with his debts and is considering filing for bankruptcy.

For question 2, Paul makes $60,000 a year, and has made an average of $5,000 for the past six months. For question 4, his parents have been giving him $500 a month to help with living expenses. Finally, for question 13, Paul is filing for bankruptcy in Connecticut, so we use the Connecticut median income to answer the question. Paul’s income is lower than the median income in Connecticut, so he would not need to complete the means test.

3. The Means Test

One of the most important requirements for Chapter 7 bankruptcy is passing the means test. The means test is a calculation used to determine if your income is low enough to file for Chapter 7 bankruptcy. The means test takes into account your income and your expenses, such as rent or mortgage payments, utilities, and other necessary expenses. If your disposable income after deducting your expenses is below a certain threshold, you may be eligible for Chapter 7 bankruptcy.

Form to Determine Means Test

Chapter 7 Means Test Calculation (Form 122A-2) is the form used to calculate whether you pass the means test. Form 122A-2 can be found here. When completing some questions about expenses on the means test, you will not fill in the actual amount of money that you spend in a category. Instead, you will need to use calculations based on either a national or local standard.

Questions 6-7 ask you to use the IRS National Standards when calculating deductions for food, clothing, and other items, as well as when calculating deductions for out-of-pocket healthcare expenses. The IRS National Standards for food, clothing, and other items can be found here. The IRS National Standards for out-of-pocket health care can be found here. These numbers apply to cases filed on or after April 1, 2023. To find the most up to date data, visit https://www.justice.gov/ust/means-testing.

Questions 8-15 ask you to use the IRS Local Standards. These standards for the different states can be found here. These numbers apply to cases filed on or after April 1, 2023. To find the most up to date data, visit https://www.justice.gov/ust/means-testing.

Question 36 asks you whether you’re eligible to file for bankruptcy under Chapter 13. Typically, you’re eligible to file bankruptcy under Chapter 13 if you’re an individual and owe less than $2,750,000.

“Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated debts of less than $2,750,000 or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated debts that aggregate less than $2,750,000 may be a debtor under chapter 13 of this title. “

11 USC 109 (e).

Question 36 also asks for your projected monthly plan payment if you were filing under Chapter 13, however the purpose of the question is to calculate your average monthly administrative expense. So give a strong estimate, but it does not need to be exact just yet.

What Happens If I Do Not Pass the Means Test?

If you do not pass the means test, then you will have to show the court that there are special circumstances for why you should be eligible to still file for bankruptcy under Chapter 7.

To establish these special circumstances, you will need to provide detailed documentation and explanations for each additional expense or income adjustment that you need.

If your additional expenses or income adjustments cause your monthly disposable income, when multiplied by 60, to be less than 25% of your nonpriority unsecured claims or $9,075 (whichever is greater), or less than $15,150, then the presumption of abuse can be rebutted. These amounts are adjusted every three years. The next adjustment will happen around April 1, 2025.

If you fail the means test and do not establish special circumstances, the court can dismiss your Chapter 7 bankruptcy petition, or ask for your permission to convert your case to a Chapter 13 bankruptcy.

4. Credit Counseling Course

You must complete a credit counseling course within 180 days before filing for bankruptcy. The credit counseling course must be from an approved agency. You can find the list of approved credit counseling agencies here.

“An individual may not be a debtor under this title unless such individual has, during the 180-day period ending on the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency described in section 111(a) an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.”

11 U.S.C. § 109(h).

5. Time Restrictions After Receiving a Discharge

To understand who qualifies for Chapter 7 bankruptcy, it’s important to know that you will not receive a discharge if you have already received a discharge under a chapter 7 bankruptcy in the past eight (8) years.

“The court shall grant the debtor a discharge, unless . . . the debtor has been granted a discharge under this section, under section 1141 of this title, or under section 14, 371, or 476 of the Bankruptcy Act, in a case commenced within 8 years before the date of the filing of the petition.”

11 U.S.C. § 727(a)(8).

In addition, you must not have received a discharge under a chapter 13 bankruptcy in the past six (6) years.

“The court shall grant the debtor a discharge, unless . . . the debtor has been granted a discharge under section 1228 or 1328 of this title, or under section 660 or 661 of the Bankruptcy Act, in a case commenced within six years before the date of the filing of the petition, unless payments under the plan in such case totaled at least:

(A) 100 percent of the allowed unsecured claims in such case; or

(B)
(i) 70 percent of such claims; and
(ii) the plan was proposed by the debtor in good faith, and was the debtor’s best effort.”

11 U.S.C. § 727(a)(9).

6. Understanding Who Qualifies for Chapter 7 Bankruptcy: Restrictions on Re-Filing After Dismissal

You cannot file for bankruptcy if you have filed for bankruptcy in the past 180 days and your case was dismissed by the court because you didn’t follow court orders or failed to show up for court.

You also cannot file for bankruptcy if you asked to have your case dismissed after the court ordered a pause on collection activities (called the automatic stay) and your creditor filed a request for relief from the automatic stay.

“Notwithstanding any other provision of this section, no individual or family farmer may be a debtor under this title who has been a debtor in a case pending under this title at any time in the preceding 180 days if:

(1) the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution of the case; or

(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.”

11 USC § 109 (g).

Conclusion

If you’re struggling with debt, Chapter 7 bankruptcy can provide a fresh start and relief from your financial burdens. However, qualifying for Chapter 7 bankruptcy can be complex, and it’s important to understand the eligibility requirements and the process involved. By passing the means test and meeting other eligibility requirements, you can take the first step towards a new financial future. Consulting with a bankruptcy attorney can help you determine if Chapter 7 bankruptcy is the right option for you and guide you through the process.

Disclaimer: The information provided is for educational and informational purposes only and should not be construed as legal advice. The use of this information does not create an attorney-client relationship, and any communication with our service through this platform does not establish an attorney-client relationship. You should consult an experienced bankruptcy attorney for advice specific to your individual situation, as each case is unique and requires careful consideration of all relevant factors.