Chapter 7 Bankruptcy
Am I eligible for Chapter 7 bankruptcy?
You just need to do some math to see if you are eligible to file for chapter 7 bankruptcy in Virginia.
BLUF (Bottom Line Up Front): You are eligible if your total monthly income over the course of the next 60 months (5 years) is less than $7,475 then may file a Chapter 7 bankruptcy. If your income is over $12,475 then you fail the means test and can't file Chapter 7. If you fall between the two numbers ($7,475 and $12,475) then there are additional calculations needed to determine if you have the option to file a Chapter 7 case (e-mail us and we can help).
Chapter 7 bankruptcy is the simplest, quickest, and cheapest way to eliminate or reduce your debt obligations. It is intended to allow eligible individuals or couples who have, for whatever reason, found themselves overly encumbered by debt and unable to pay off what they owe to be relieved from those debts and receive a financial fresh start. While the Bankruptcy Code offers a few different types of bankruptcy, some for individuals and others for businesses, it is your individual and unique circumstances that will determine your eligibility to file for Chapter 7 bankruptcy.
The first step in determining whether you are eligible for filing a Chapter 7 bankruptcy is based on your income over the past six months. To figure this out, you'll have to add up all the income you have received from all sources during the six-month period before you file. You'll then double that number to get an estimated annual income (or divide by six to get the monthly average). Your estimated annual income is then compared to the median income for a similar-sized household in the state. This is known as the “median income test,” which basically says that you can qualify for Chapter 7 bankruptcy if the total income of your entire household is below the median for your state.
So, what does this mean? If you live alone, your income must be below $60,925 per year to qualify. If you are married or share a house with a family member, your combined income must be below $77,999.00 per year. And so on. Note the test considers your spouse's or family members' income even if they will not be filing bankruptcy with you.
The “median income” test is not the only way to qualify for Chapter 7. If you are under the median income, you almost certainly qualify, unless you have recently started a new higher paying job. If you are slightly over, you might still qualify under a more complicated analysis called the “means test.” And if you are more significantly over the median income, you are likely still eligible for Chapter 13 or Chapter 11.
The “means test” is a questionnaire meant to determine what your actual income is compared to your actual expenses, on a monthly basis. This test can make adjustments to the median income test. For example, if your income is slightly above the median, but is offset by legitimate expenses and other offsets, then you may still qualify under the means test. Similarly, if your income is below the median household, but you have far lower expenses than what is typical, you could potentially not qualify, although that situation is quite uncommon. Correctly identifying your income and expenses prior to filing is crucial to ensuring that you qualify for, and remain eligible for, a Chapter 7 bankruptcy.
Additionally, the Bankruptcy Code itself lists certain exceptions which prohibit a person from proceeding with a Chapter 7 bankruptcy. The most likely scenarios which would prevent you from filing for bankruptcy under Chapter 7 include:
You previously received a Chapter 7 bankruptcy discharge which was filed within the last eight years;
You previously received a Chapter 13 bankruptcy discharge which was filed within the last six years;
You had a previous bankruptcy proceeding (either Chapter 7 or 13) dismissed within the last 180 days because you violated a court order, or voluntarily requested a dismissal;
You failed to obtain a credit counseling certificate of completion within the 180 days preceding your date of filing;
You defrauded your creditors before filing for bankruptcy—for example: you intentionally sold assets to friends or family for less than the asset is worth, you attempted to conceal property from your creditors, or purchased luxury items with no intent to pay;
You attempted to defraud the bankruptcy court by making false statements to the trustee, withholding or destroying necessary financial records; or
You refuse to answer questions or obey orders from the bankruptcy court either in your case or one of your close relatives, business associate, or related business.
These are just a select few ways which may mark you as immediately ineligible for filing for Chapter 7 bankruptcy. While this list is non-exhaustive, these are the most common reasons. To check your eligibility for Chapter 7, contact our experienced staff today.