Who Can and Cannot File for Chapter 7 Bankruptcy

Chapter 7 bankruptcy form on table.

The First Step to Debt Relief

Eligibility for Chapter 7 Bankruptcy Depends on the Means Test and Other Rules

Just about any person who owns property in the United States can file for Chapter 7 bankruptcy, but you must meet certain criteria before you are eligible for a discharge (the court order that eliminates qualifying debt).

An individual filing a consumer bankruptcy must pass the “Means Test” to determine eligibility. Certain qualified disabled veterans or people whose debts are primarily from a business do not have to pass the means test. The court also may order your case dismissed if you filed a previous bankruptcy within a certain period, or if they believe you are trying to cheat creditors. Finally, an incorporated entity isn’t entitled to debt relief under Chapter 7 bankruptcy.

What If You Have Enough Income to Repay Some of Your Debt?

Bankruptcy laws have established criteria for who can receive a Chapter 7 bankruptcy discharge, and who must repay debt through a three- to five-year Chapter 13 repayment plan. 

What is Your Income?
  • The absolute first step to determine if you can file for Chapter 7 is the “Means Test.” You compare your household income against the median income for a family of your size in your state. The average of income over the six months prior to filing is your “current monthly income.”
  • If your income falls below the median, the presumption is that you are eligible to file Chapter 7 bankruptcy, assuming you can meet the other criteria. If your income exceeds the median, you must pass the “means test” to file Chapter 7 and have the debt discharged.

Median Income in Ohio

FAMILY SIZE
STATE 1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE*
Ohio $47,582 $59,565 $69,058 $83,515
Add $8,400 for each individual in excess of 4

Your Income, Your Debt, and the Means Test

What About Disposable Income? Do You Have the Ability to Repay Some Debt?

The “means test” allows the court to determine whether or not you have adequate disposable income – the amount of your monthly income less certain allowable expenses and required debt payments – to repay some of your debts. If you have enough disposable income, the court may require you to repay a certain portion of your unsecured debts over a three- to five-year repayment period by switching the filing to a Chapter 13 plan.

How Much Money Do You Have Left Over Each Month?

The trustee will review not only the means test criteria, but other bankruptcy schedules to see a snapshot of your current income and actual expenses.

The bankruptcy trustee will review Schedule I: Your Income and Schedule J: Your Expenses. If the net result demonstrates you have income remaining to make a payment to creditors, the trustee may recommend that the court convert your case to Chapter 13.

If You Received a Recent Bankruptcy Discharge

If you received a discharge of another Chapter 7 bankruptcy within the last eight years, or you received a Chapter 13 bankruptcy discharge within the past six years, you aren’t allowed to get another discharge within that period, but you may be able to file a Chapter 13 case and receive a discharge.

If A Previous Bankruptcy Case was Dismissed Within the Previous 180 Days

You aren’t eligible to file another Chapter 7 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days due to one of the following reasons:

  • The court ruled that your case was filed to perpetuate a fraud or was considered an abuse of the bankruptcy system
  • You directly violated an order by the court
  • A creditor asked for relief from the automatic stay and you requested the dismissal.
If You Defraud Creditors

If the court thinks you were trying to cheat your creditors, or you tried to conceal assets to avoid having them sold, the court might dismiss your case.

Red Flags to the Court and Trustee

If you engage in certain activities during the previous year, the court may dismiss your bankruptcy case or refer your case for criminal prosecution. Below are several actions that the bankruptcy trustee will watch closely:

  • Selling assets just prior to filing bankruptcy, especially to a friend or relative, for less than market value
  • Incurring debt for luxury items when it’s clear you would not have a method to repay them
  • Concealing money or property from a business partner
  • Making a misrepresentation about your income or debts on a credit application

Remember, you must sign your bankruptcy filing papers under the “penalty of perjury” and declare that everything is true to the best of your knowledge. If the court discovers you deliberately failed to disclose property, hide or omit information about your finances, try to hide your identity as a previous filer by using a fake Social Security number, the court may either dismiss your case or refer your case for fraud prosecution, or both.

Uncertain About Chapter 7 Eligibility?

You might wonder if your past financial activity or current earnings disqualify you. Get clarity on whether this fresh start is an option.

Confirm Your Eligibility