Do I Qualify For A Chapter 7 Bankruptcy?

09 Mar Do I Qualify For A Chapter 7 Bankruptcy?

Most people qualify to file a chapter 7 bankruptcy.  BAPCPA, the law that changed bankruptcy and went into effect in October of 2005, did attempt to make it harder to qualify, but in reality, only a very small percentage of consumers aren’t eligible.

First of all, if your debts are primarily business related, you can always file a chapter 7.  If your debts are consumer obligations, the law set up two tests to make it more difficult to file:

First, a debtor must check her income against the “median” income in her state for her filing status. To do this she has to include all of her gross income and anything else normally contributed to her household living expenses.  The formula starts with a look at the previous six months of income and then annualizes the amount.  Thus, for a single person in California, the median income will be $49,182 as of March 15, 2009.

If you’re over median income, than you must file Form B22A – the “means test.”  This is a complicated calculation that considers your income (starting with all monies received for the month) and subtracting the standard deductions determined by the Internal Revenue Service and those expenses the law deems reasonably necessary (like mortgage payments).  If after all of the available deductions, there is money left over in excess of $182 each month, then you might not qualify to file a chapter 7 bankruptcy.

Lastly, if you have money left over after completing the means test, you can still look to see if there are special circumstances to reduce the income or increase the expenses, or you can often file a chapter 13 bankruptcy.

Experience has shown that most people qualify for a chapter 7 bankruptcy after carefully filling out the means test and taking advantage of all possible permitted deductions.  Competent bankruptcy counsel can guide you through this process.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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