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Chapter 7 bankruptcy offers a fresh start for many individuals and businesses experiencing financial troubles. Known as “liquidation” bankruptcy, Chapter 7 allows people to get rid of eligible debts after selling nonexempt assets.
Wondering if you are eligible to file for Chapter 7 bankruptcy?
In this article, our Massachusetts bankruptcy lawyer outlines the key eligibility requirements for filing Chapter 7 bankruptcy in Massachusetts.
Understanding Chapter 7 Bankruptcy
Chapter 7 bankruptcy offers a pathway to alleviate financial burdens by permanently discharging most debts. Unlike Chapter 13, which involves a repayment plan, Chapter 7 requires liquidating (selling off) the debtor’s nonexempt assets to pay creditors. For those who are unable to qualify for Chapter 7 bankruptcy relief, alternatives such as Chapter 11 or Chapter 13 may offer a more suitable solution.
Chapter 7 Eligibility Criteria
Not everyone will qualify for Chapter 7 bankruptcy. The law lays down specific criteria to determine if this debt relief option is appropriate for your financial situation. Here’s a deeper look into the eligibility requirements:
Means Test
The means test is a financial test that serves as the gateway to qualifying for Chapter 7 bankruptcy. It’s a formula used to determine if your income is low enough for you to file for Chapter 7 bankruptcy. Here’s how it works:
Comparison Against State Median: Initially, your average monthly income over the six months preceding your bankruptcy filing is compared against the median income for a household of your size in your state. If your income is below this median, you automatically qualify.
Disposable Income Calculation: If your income exceeds the state median, a more detailed calculation is performed to assess your disposable income after deducting allowed expenses (like living costs, taxes, and mandatory payments). The outcome of this calculation determines whether you can file for Chapter 7 or if you’re more suited to Chapter 13 bankruptcy, which involves setting up a repayment plan for your debts.
The means test ensures that Chapter 7 bankruptcy is available to those who genuinely need it, preventing abuse of the bankruptcy system by individuals who can afford to pay their debts.
Credit Counseling
Before you can file for bankruptcy, you must complete credit counseling with an agency approved by the United States Trustee’s Office within 180 days before filing. This requirement serves several purposes:
- Evaluation of Financial Situation: The counseling provides an overview of your financial situation, helping you understand all available debt relief options.
- Financial Education: It educates you on budgeting and financial management, aiming to prevent future financial distress.
- Certification for Filing: Upon completion, you’ll receive a certificate you must file with your bankruptcy petition, proving that you’ve undergone counseling.
This step is crucial as it ensures that filing for bankruptcy is indeed the best option for your circumstances and that you’re informed about alternatives.
Previous Bankruptcy Filings
If you’ve filed for bankruptcy before, certain time restrictions apply before you can file for Chapter 7 again:
Chapter 7 to Chapter 7: If you’ve previously received a discharge under Chapter 7, you must wait eight years from the date of filing the previous case before you can file another Chapter 7 bankruptcy.
Chapter 13 to Chapter 7: If you’ve received a discharge under Chapter 13, you generally need to wait six years before filing for Chapter 7, unless you paid back a certain percentage of the debts to unsecured creditors in the Chapter 13 case.
These time restrictions prevent the repetitive use of bankruptcy filings as a way to avoid debt repayment, ensuring that the bankruptcy system supports those who are in need of its protection due to genuine financial hardship.
Steps to Filing for Chapter 7 Bankruptcy
Filing for Chapter 7 bankruptcy involves a series of steps that you’ll need to follow closely to ensure a smooth process. First, you’ll start by completing the necessary forms and undergoing credit counseling. This initial step is essential, as it prepares you for the process ahead and is a mandatory requirement. After that, you’re required to file a petition with the bankruptcy court in your area. You’ll also need to handle the associated fees along with your petition. However, if you’re facing financial hardship, you might qualify for a waiver or be allowed to make installment payments.
Once your petition is filed, the next major milestone is the meeting of creditors, where you’ll meet with creditors who wish to discuss your case. This meeting is a standard part of the bankruptcy process and provides an opportunity for creditors to ask questions about your financial situation and the filed documents.
Finally, if everything goes according to plan and you meet all the requirements, your eligible debts will be discharged. This discharge represents a new beginning for you, free from the burdens of your previous debts, and offers a fresh financial start. Remember, each step in this process is important and contributes to the successful completion of your Chapter 7 bankruptcy filing.
Are You Ready for a Fresh Start?
The decision to file for Chapter 7 bankruptcy requires careful consideration and, often, the guidance of an experienced bankruptcy attorney. If you’re considering filing for Chapter 7 bankruptcy in Massachusetts, it’s important to consult with a local attorney familiar with both federal and state-specific bankruptcy laws. This professional guidance can ensure you make informed decisions and achieve the best possible outcome in your bankruptcy case. Contact our office today for a consultation.