The Means Test: Are You Eligible for Chapter 7 Bankruptcy?

The qualifications for filing for Chapter 7 bankruptcy varies by state. For this reason, it is important to get a bankruptcy attorney that is familiar with the laws and regulations in the area where you live. Several factors determine whether or not you are allowed to file for Chapter 7. If you fail to meet the requirements, your bankruptcy case will be dismissed rather than discharged by the court. Be as prepared as possible when you are ready to file, and follow all the advice your attorney gives you for the best possible outcome.

Image Courtesy of MyEyeSees via Flickr

The Means Test

The Means Test is a federal form that calculates whether or not you qualify for Chapter 7 bankruptcy. This form determines your qualification based on your income, the size of your family and existing state regulations. If you do not qualify for Chapter 7, you still may be eligible to file for Chapter 13 bankruptcy. The primary difference between these two is Chapter 7 eliminates all or most eligible debt, and Chapter 13 requires you to pay some or most of your debt back through the court.

Credit Counseling

After you determine your eligibility for Chapter 7 bankruptcy through the Means Test, you must complete credit counseling and obtain a certificate before entering into bankruptcy court. This counseling must occur within 180 days of filing for bankruptcy. Be sure to use a credit counseling agency that is Bankruptcy Trustee approved. There is a nominal fee between $30 and $50 but it can be waived in certain circumstances.

Schedule of Assets and Liabilities

You’ll also need to complete a Schedule of Assets and Liabilities for the court. List everything you own and its value, along with your liabilities – which is what you owe. The courts will allow you to keep personal essentials, such as clothing and necessary household items. Your attorney can help you fill out the income chart for filing bankruptcy as well as calculate your liabilities. You can try to reaffirm your home or a vehicle as a necessity to get back on track. Sell high-end merchandise like stereo equipment, flat screen TVs and other luxury items in order to partially reimburse your creditors.

Bankruptcy is often the fresh start needed for people who end up in serious financial situations and have no way to get out. New laws are intended to prevent abuse of the bankruptcy system and protect the economy from large numbers of bad debts. Successful people often are able to use this process to get another chance after job loss, long-term disabilities and other life-altering events.