Who Can File for Chapter 7?
Chapter 7 bankruptcy is intended to provide relief for people who have a lot of unsecured debt and don’t have sufficient income or assets to make good on that debt. Unlike Chapter 13 bankruptcy, Chapter 7 bankruptcy isn’t designed to help debtors catch up on past-due accounts—it’s meant to wipe the slate clean.
That means that most people who file for Chapter 7 bankruptcy have primarily unsecured debts: debt like credit card debt, medical bills, past due utility bills, unsecured personal loans and similar debts. People who have outstanding debt on big-ticket items like homes and cars and want to keep that property usually opt to file for Chapter 13 bankruptcy, which allows for repayment of debts over a 3-5 year period and allows the debtor to keep his property.
The new bankruptcy law that took effect in October of 2005 sought to make sure that people who could pay some or all of their debts did so. Thus, the law imposed the Chapter 7 means test. The means test attempts to screen debtors to find out whether or not they have the means available to pay some or all of their debts.
The first step of the means test is to compare the debtor’s income to the median income in his state. The test ends right there for most Chapter 7 debtors—if the debtor’s income is below the median for his state, he can file under Chapter 7. However, if a debtor’s income is higher than his state’s median, it doesn’t necessarily mean that he can’t file under Chapter 7: it just means that the debtor must move on to the next step of the means test and provide additional information to determine how much disposable income he has available to pay debts.
The short answer is that nearly everyone who would have filed for Chapter 7 bankruptcy before the law change can still do so. For specific information about your eligibility for Chapter 7 bankruptcy and to find out whether or not Chapter 7 bankruptcy would provide the relief and protection you need, talk to a local bankruptcy attorney about the specifics of your financial situation.