Chapter 7 Bankruptcy Requirements: Complete Guide for 2024
Chapter 7 bankruptcy requires passing the Means Test, completing credit counseling before filing, and debtor education before discharge. You must cooperate with your Trustee and meet all filing deadlines. Understanding these requirements ensures you get the fresh start you deserve.
Get Free ConsultationIndividuals, spouses, and businesses can qualify for Chapter 7 bankruptcy relief. You must meet specific requirements to file and receive your discharge.
Some requirements determine your eligibility to file. Others determine whether you’ll receive your bankruptcy discharge.
Qualify for Chapter 7 Debt Elimination?
A bankruptcy attorney can review your income, calculate your Means Test results, and determine if you qualify for Chapter 7 discharge. Free consultation with no obligation.
Check Eligibility NowUnderstanding these requirements is your first step toward debt freedom. Here’s everything you need to know.
Filing Requirements for Chapter 7 Bankruptcy
Debtor Status
Individuals, spouses, partnerships, corporations, and LLCs can file Chapter 7. You cannot file if your prior case was dismissed within 180 days.
Courts dismiss cases when filers don’t obey court orders. You also can’t file if you voluntarily withdrew after a creditor requested automatic stay relief.
Time limits also apply between bankruptcy filings. You must wait 8 years after a Chapter 7 discharge before filing again. After a Chapter 13 discharge, you must wait 6 years.
These rules prevent abuse of the bankruptcy system. Bankruptcy helps honest but unfortunate debtors, not those trying to delay creditors.
Credit Counseling Course
You must complete credit counseling within 180 days before filing. The course must come from a United States Trustee approved provider.
Most providers offer online or phone courses. Some offer in-person sessions with face-to-face counseling.
The course takes about 90 minutes. Costs range from $10 to $50 depending on the provider.
The course educates you about different bankruptcy types and alternative debt relief options. You’ll receive a certificate of completion to file with your petition.
Filing Fee
The Chapter 7 filing fee is $338. You pay this when you file at the courthouse.
If wage garnishment makes saving difficult, request a payment plan. Filing triggers the automatic stay, which stops garnishments immediately.
People earning less than 150% of federal poverty guidelines can request a fee waiver.
Income Requirements
The Means Test determines whether you qualify for Chapter 7. Congress added this in 2005 to ensure only those who truly need it receive Chapter 7 relief.
The test checks if you have enough income to fund a Chapter 13 repayment plan. Passing proves you’re eligible for Chapter 7.
Calculate Current Monthly Income
Compare your household income to your state’s median income. Use the last six months of income, excluding the filing month.
Someone filing in July calculates income from January through June.
Eligible income sources include:
- Wages, tips, salaries, bonuses, commissions, and overtime
- Rental income
- Alimony and child support
- Gross business income
- Annuity payments
- Retirement income
- Unemployment compensation
- Dividends, interest, and royalties
- State disability payments
Excluded income sources include:
- Social Security benefits
- Veterans’ disability benefits (under the HAVEN Act)
- Victim benefits from war crimes, domestic terrorism, and international terrorism
- Tax refunds, one-time gifts, yard sale proceeds
Add all eligible income from six months. Divide by six, then multiply by 12 for your annual income.
Compare to State Median Income
Median income numbers vary by state and update periodically. Complete this analysis when you plan to file.
If your gross income is below your state’s median, you pass the Means Test. You can file Chapter 7 bankruptcy.
If your income exceeds the median, proceed to the second part of the test.
Calculate Disposable Income
Income above the median requires an extended Means Test analysis. You subtract paycheck deductions and reasonable living expenses from the Bankruptcy Code.
The result is your disposable income. Negative disposable income means you pass the Means Test.
Positive disposable income doesn’t automatically disqualify you. If it’s enough to pay 25% of unsecured debts over 60 months, you must file Chapter 13 instead.
Many people who fail part one qualify under disposable income testing. Chapter 13 offers benefits too, including lower car loan interest rates.
Exceptions Based on Debt Type
Some circumstances exempt you from the Means Test. The Office of the United States Trustee won’t review your income.
Nonconsumer Debts
If over 50% of your debts are nonconsumer debts, you skip the Means Test. Nonconsumer debts are business-related loans and credit cards.
Medical bills, mortgages, and personal credit cards are consumer debts. Business loans and credit card debt for business purposes are nonconsumer debts.
Consult a bankruptcy attorney for a free consultation if you think this applies. The analysis is fact-intensive.
Debts From Active Duty
Disabled veterans who incurred debts during active duty or homeland defense activities are exempt from the Means Test.
Statement of Exemption
Exempt filers must submit a Statement of Exemption. The simple form tells the Court and Trustee why income limits don’t apply.
Discharge Requirements for Chapter 7
Debtor Education Course
Complete a debtor education course before receiving your discharge. You can’t take it until after filing your petition.
Without completing this course and filing your certificate, you won’t receive your discharge. Your discharge is the ultimate goal of Chapter 7 bankruptcy.
Complete the course as soon as you receive your case number. Don’t risk forgetting later.
The course teaches budgeting, saving money, and using credit wisely. Use the same company from your credit counseling course, or choose any approved provider in your district.
The online course takes about two hours. Costs are similar to credit counseling courses.
Official Bankruptcy Forms
Use official bankruptcy forms from the United States Bankruptcy Court. Some websites claim to offer official forms but don’t.
Getting forms directly from the Court ensures you meet requirements. Many free resources help you complete the forms correctly.
Cooperation in Case Administration
You must help your bankruptcy Trustee administer your case. Attend your meeting of creditors.
Chapter 7 is liquidation bankruptcy. The Trustee reviews your assets to find nonexempt property.
Not every case is an “asset case.” In asset cases, the Trustee sells nonexempt assets and pays creditors.
You won’t receive your discharge without cooperation. The Trustee can revoke your discharge even after it’s entered if you don’t fulfill obligations.
Update your Trustee and the Court if your contact information changes. Open and review all mail from your Trustee immediately.
Call the Trustee’s office with questions. Ignoring communication makes Trustees assume the worst.
Why Your Bankruptcy Discharge Matters
Your bankruptcy discharge eliminates your legal obligation to repay discharged debts. Creditors can’t take collection action against you.
Not all debts are dischargeable. Recent tax debts and certain other obligations remain. Stay current with these to rebuild your credit score.
Without your discharge, you still owe all debts from before bankruptcy. Collection actions resume once your case closes without discharge.
Meeting all requirements is crucial for debt freedom. Speak with a bankruptcy attorney for free to ensure you’re on the right track.