Special or unforeseen circumstances may leave you unable to pay your debts, and anyone can file for bankruptcy. However, changes made to bankruptcy laws in 2005 require debtors to pass a means test in order to qualify. Because Chapter 7 bankruptcy discharges your debts, you must first prove you are unable to pay them by passing a means test.
The means test was designed to weed out those who are attempting to commit fraud. If you're truly unable to pay your debts, you will likely pass the means test. Any disabled veteran who wishes to file Chapter 7 for debts they incurred while serving in a combat zone is automatically eligible for Chapter 7. Similarly, filers whose debt was incurred primarily as a result of operating a business do not have to pass the means test.
The first part of the test calculates your monthly income. If it is below the state median, you qualify for Chapter 7. Monthly income is determined by calculating average income for the previous six months. Eligible monthly income excludes tax refunds and Social Security retirement income, but includes the following:
- Annuity payments
- Child support, alimony
- Disability income from the state
- Gross income from a farm, business, or profession
- Interest, royalties, dividends
- Pension and retirement income
- Rent and real property income
- Unemployment income
- Wages, tips, salary, overtime, bonuses, commissions
- Workers' compensation
If you do not pass this first step, you may still qualify for Chapter 7 if your "disposable income" is below a certain amount. Disposable income is the money you have left each month after paying mortgage and car payments, utilities, grocery bills, and the like. If it is determined that you have enough disposable income to pay off some debt, you won't be able to file Chapter 7.
Exceptions to Eligibility
Even if you pass the means test, you may be ineligible to file Chapter 7 under the following circumstances:
- You have filed Chapter 7 in the past eight years or Chapter 13 in the past six years
- You have filed bankruptcy in the past 180 days and it was discharged due to violation of the order, fraud, or filer request
- You haven't gone through a qualified credit counseling service within 180 days of filing
- You have transferred property to friends or family, purchased luxury items, destroyed property or provided false information on a credit application or in your bankruptcy filing papers
At the Law Office of Robert C. Nisenson, LLC, we understand that needing to file bankruptcy is not a moral failing but is usually a result of circumstances beyond one's control. We can help you get back on the road to financial recovery. Call us at 732-518-8038 for more information about Chapter 7 bankruptcy.