Bankruptcy offers immediate protection from creditor collection efforts through an automatic stay. Filers can also eliminate the legal obligation to repay eligible debts through the discharge granted at the end of the process. Most people choose between Chapter 13 and Chapter 7 filings.
Chapter 7 bankruptcy is the fastest route to a discharge for an individual with excessive personal debts. It is possible to complete the Chapter 7 filing process in roughly six months in many cases, while Chapter 13 bankruptcy requires multiple years to complete.
Chapter 7 bankruptcy is faster because it does not require a repayment plan. Therefore, there are restrictions on eligibility to prevent people from abusing this aggressive form of personal bankruptcy. Who is potentially eligible for a Chapter 7 bankruptcy filing?
Chapter 7 filers must have below-average income
Qualifying for Chapter 7 bankruptcy requires that a person pass a means test. Means testing looks at an individual’s annual income, which they calculate based on their wages over the last six months. They can adjust their income for specific allowable expenses.
They must then compare their adjusted income to the state median income based on household size, and only those below the applicable median income are eligible. The Justice Department provides figures that assist with the means testing process. Individuals who are close to qualifying for Chapter 7 bankruptcy may require support during means testing and determining if Chapter 7 bankruptcy is the right option for them.
Discussing financial challenges, household income and personal assets with a lawyer can help people choose the best solution for overwhelming debt. Chapter 7 bankruptcy can help those with qualifying income rapidly discharge their eligible debts and work toward a more sustainable household budget.