Qualifying for Chapter 7 bankruptcy can be important relief that struggling consumers need. For that reason, it is important to know how to qualify when debt relief is needed.
How to qualify for Chapter 7 bankruptcy
Chapter 7 bankruptcy is considered a liquidation bankruptcy option. Property is sold to repay debts. It allows the filing party to enjoy debt relief, however, it may not be available to everyone. For struggling consumers interested in debt relief through bankruptcy who do not qualify for Chapter 7 bankruptcy, other personal bankruptcy options may be available. To determine who qualifies for Chapter 7 bankruptcy, the means test is used.
The means test is used is used to determine who qualifies for Chapter 7 bankruptcy. The means test evaluates the average monthly income of the filing party for six moths prior to filing for bankruptcy to determine if it is less than, or equal to, the median income in the filing party’s state. If their income is less or below the median income, they qualify for Chapter 7 bankruptcy.
Important things to note
In some situations, a filing party who has an income higher than the state’s median income may still qualify for Chapter 7 bankruptcy under the means test if they do not have enough disposable income to repay creditors when their income, expenses and family size are all taken into account.
Once the filing party qualifies for Chapter 7 bankruptcy, the process involves liquidating nonexempt assets to repay creditors. Exempt assets are not included in the process. At the end of the process, remaining debt is discharged. Unsecured debts, including credit card debt, medical debt and utility bills may all be discharged. Chapter 7 bankruptcy is an important resource to help struggling consumers leave the stress of debt behind which is why they should be familiar with how to qualify.