Can I File Bankruptcy?
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Can I File for Bankruptcy?
Bankruptcy can provide temporary relief for persons or businesses that are in debt. Most individuals with personal, non-business debts file bankruptcy under Chapter 7 of the Bankruptcy Code. Chapter 7 allows the court to completely discharge all or some of the person’s debt, which would allow the debtor to have a fresh beginning for their finances.
Previously, a judge had much discretion to dismiss a Chapter 7 bankruptcy claim. However, new legal provisions have set fixed criteria which allow a judge to accurately determine eligibility for bankruptcy. These legal provisions are set forth in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
While BAPCPA does make bankruptcy requirements clearer, it can also make filing more difficult, since it is aimed at preventing abuses of the bankruptcy system. Several factors are used to determine a person’s eligibility for bankruptcy under BAPCPA and Chapter 7 laws.
What Are the requirements to file Chapter 7 Bankruptcy?
In order to file bankruptcy under Chapter 7, you need to meet the following basic requirements:
- You reside, have a domicile, have a place of business, or own property in the U.S.
- It would not be “fundamentally unfair” for the judge to grant bankruptcy
- Your monthly income is below the median level for a household of your size in your state
- If your income is above the state median level, you must be able to pass a “means test” (more on this test below)
What Factors Disqualify Me from Filing Bankruptcy?
You may NOT file Chapter 7 bankruptcy if:
- You have previously obtained a successful Chapter 7 discharge (clearing) of your debts within the last 6 years
- You have had an application for Chapter 7 dismissed within the last 180 days prior to your current filing
- You have defrauded creditors (for example, submitting fraudulent information to creditors, or concealing assets from them)
- You have submitted fraudulent information to the bankruptcy court
- You have engaged in certain “red flag” activities that suggest you are abusing bankruptcy proceedings, such as:
- Distributing your assets to family or friends for the purpose of concealing them from creditors or the court
- Running up high debts for luxury items knowing that you could not pay them off
- Lying during a divorce proceeding or on income tax returns
These factors have been implemented through BAPCPA as a means of preventing consumers from abusing bankruptcy privileges. If you are found to have committed these acts, you will not be able to file bankruptcy.
What Is the “Means Test” in Chapter 7 Bankruptcy?
The purpose of the Means Test is to determine whether you have enough disposable income to repay at least some of your debts over a set period of time. The basic assumption in filing for bankruptcy is that you do not have enough money to pay off your debts. So, if you are generating enough income to pay off some of your debts, a judge will likely deny your application for bankruptcy if the court finds that you are generating enough to pay off some of your debts.
The Means Test involves a complex calculation to determine whether you are filing bankruptcy out of a genuine need and not simply abusing the system. Before filing for bankruptcy, you should consult with a lawyer or use an online calculating tool to determine whether you might satisfy the Means Test requirements.
Do I Need a Lawyer to File Bankruptcy?
Not everyone is eligible to file for bankruptcy. If you feel that you may need to file for bankruptcy, you should consult with a bankruptcy lawyer before doing so. They will be able to determine whether filing bankruptcy is appropriate for your situation. An experienced bankruptcy attorney can also help you if you suspect that you may be subjected to a Means Test calculation. Be sure that you have not taken actions which might disqualify you from filing bankruptcy.
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Last Modified: 02-18-2015 12:48 PM PST
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