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In a given year, roughly 60% of all bankruptcy filings in U.S. federal courts are for Chapter 7 bankruptcy. In 2016, that meant that of the 770,000 bankruptcy petitions made in the U.S., over 475,000 fell under Chapter 7 of the U.S. Bankruptcy Code. Despite the popularity of Chapter 7 bankruptcy in Missouri and across the United States, not everyone qualifies for Chapter 7 bankruptcy. Would you qualify?
How Is Chapter 7 Bankruptcy Different from Other Types?
Most types of bankruptcy under the U.S. Bankruptcy Code require the debtor, either an individual or entity, to reorganize its debt. Depending on the type of bankruptcy, this can include adherence to a payment plan, meeting specific deadlines, and crucial negotiations with creditors. For example, when filing Chapter 13 bankruptcy, a debtor must follow a three to five-year repayment plan before bankruptcy is finalized and remaining debt discharged.
Chapter 7 bankruptcy is different. The same bankruptcy lawyers in St. Louis handle Chapter 7 bankruptcy filings and procedures, but Chapter 7 is a liquidation process. All non-exempt assets belonging to the debtor are collected in the bankruptcy estate and sold by a bankruptcy trustee to repay outstanding debt. Chapter 7 bankruptcies are faster than types that require reorganization and repayment. In Missouri, a Chapter 7 bankruptcy can be finalized in three to six months.
Qualifying for Chapter 7 Bankruptcy Under the Means Test
Chapter 7 bankruptcy is designed for individuals and companies who will never otherwise meet their outstanding financial obligations. To effectuate this purpose, Congress included a means test in the eligibility requirements for Chapter 7 bankruptcy. This is the biggest barrier for filing bankruptcy under Chapter 7.
The means test is a specific calculation that takes into account the annual income of the debtor, compared to the median annual income in the State of Missouri. Your St. Louis bankruptcy lawyer helps you determine if your household income is below the state median by looking at your last six months of income.
If you fall below the median income for Missouri, currently at $45,231 per year, you are eligible for Chapter 7 bankruptcy. Failing this first calculation of the means test doesn’t mean you are relegated to the Chapter 13 bankruptcy process; there is a second calculation.
An individual can also file for Chapter 7 bankruptcy if disposable income is insufficient to repay debts.
Disposable income is determined by looking at your regular expenses for the past six months, including groceries, rent, and utility payments. Added together these expenses are called allowable expenses and any remaining monthly income is considered disposable income. A local bankruptcy lawyer can help you collect documentation of your allowable expenses and finalize the calculation of disposable income.
Other Requirements for Chapter 7 Bankruptcy
The means test is certainly the biggest hurdle to filing for Chapter 7 bankruptcy, but it isn’t the only requirement to file. A debtor must also complete pre-bankruptcy credit counseling within six months of filing under Chapter 7. Credit counseling is available for individuals who aren’t planning to file for bankruptcy as a course on better financial practices and habits and at a cost. For individuals preparing for Chapter 7 bankruptcy, counseling agencies will provide the class at no cost.
As well, you can’t have a recent bankruptcy discharge in your past to file under Chapter 7 of the U.S. Bankruptcy Code. The time restrictions are different for a previous Chapter 7 or Chapter 13 bankruptcy. You aren’t legally allowed to file for a subsequent bankruptcy if you had a Chapter 7 bankruptcy discharged in the last eight years or a Chapter 13 bankruptcy discharged in the last six years.
Keep in mind that the clock begins to run when an earlier bankruptcy was filed, not when it was discharged. This qualification on the timeline is very important if your earlier bankruptcy was discharged under Chapter 13. Any uncertainty about required credit counseling or a previous bankruptcy can be directed to a St. Louis bankruptcy lawyer.
Want to Ask a Lawyer About Your Bankruptcy Eligibility?
Deciding to file for bankruptcy is a major decision, and it can be even harder to determine what type of bankruptcy is best for your financial situation. Luckily, there is an excellent source of advice only a phone call away. The Ledbetter Law Firm is your first point of contact for bankruptcy representation and information.
Contact our St. Louis office today to speak with an experienced bankruptcy lawyer and schedule a free initial consultation. You can reach us at (314) 925-0239 or right here on our website.