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The chance to start over with a blank slate is very tempting and Chapter 7 bankruptcy is sometimes subject to abuse. That is why the law provides for certain eligibility conditions that must be met by someone who wants to file for bankruptcy. These conditions include:

Bankruptcy Filing In The Past

A person who filed a petition for Chapter 7 bankruptcy in the past and received a discharge cannot file another petition for eight years since the date the first one was filed.

However, if the first petition was not completed and there was no relief received, then a second petition may be filed at any time. This of course depends on whether or not the court gave a provision on the first petition that bars a subsequent petition.

Credit Counseling

In order for you to qualify for bankruptcy, you need to undergo a prebankruptcy credit counseling course. These courses are regularly conducted by approved agencies. The U.S Department of Justice has a complete list of approved agencies on its website.

Credit counseling is required to help you determine if there are other options you can explore before you file for bankruptcy. You must go through the course within six months prior to filing for bankruptcy. The agency will provide you with a certificate that you will file with the court as proof.

Don’t confuse credit counseling education with debtor education. The former is required before you can file for bankruptcy while the latter is another course you need to take after the bankruptcy is filed.

Means Test

The bankruptcy means test determines if you qualify for bankruptcy by looking into your finances. It checks if you have available income that can be used to pay your debt. The test works only for those that have consumer debts like credit card debts. If your debt is from your business, passing the means test is not essential.

The means test is a two-part test. The first part checks if your household income falls below the median income in your state. You can provide documentation to show your income within the past six months. If your income is shown to be below the median income then you pass the test and are deemed eligible for Chapter 7 bankruptcy.

The second part checks for disposable income. You are required to submit documentation of all your expenses during the past six months. All “allowable expenses” are calculated and what’s left of your income after allowable expenses is considered disposable income. This can be used to pay your debt or at least part of it.

It is very important not to hold any information at this step. If you are found to have kept any expenses secret, your case could be thrown out . Allowable income is based on standards set by the Internal Revenue System (IRS) on both national and local levels.

Food and clothing are covered by national standards while things like car and housing payments are under the local standards. The remaining disposable income will be considered and if it is deemed not enough you may qualify for Chapter 7 bankruptcy.

If you fail the test it doesn’t mean all is lost. You can take the test again in another six months since it considers your financial situation within the past six months.

Chapter 7 Bankruptcy Process

Here is what happens when you file for Chapter 7 bankruptcy:

Filing The Petition For Bankruptcy

Your petition contains all the information that the court needs to determine if you should be granted a discharge. It has all your financial information covering your income, debts, assets, and asset transfers within the last ten years. It should also contain the certificate provided to you by the credit counseling agency.

An automatic stay calls off your creditors.

You will get relief from creditors hounding you at this point. They will be ordered to stop collecting or trying to collect from you. They cannot call, email, text, or come to your door while your petition is pending. They cannot foreclose or repossess the disputed properties either. This is however without prejudice to the right of the creditor to go to court and request that the automatic stay be lifted.

Financial Disclosure

A meeting with your creditors will be scheduled down the road. To prepare for it, the next step means gathering up all relevant financial documentation and giving these to the trustee. These documents are your evidence that backs up the claims found in your bankruptcy petition. Paperwork must be sent to the trustee at least five days before the meeting with the creditors.

Meeting The Creditors

At the meeting, the bankruptcy trustee is expected to ask questions about your identity and finances for verification purposes. In many cases, the creditors don’t even show up to ask questions.

Financial Management Course (Debtor Education)

As mentioned above, after you file for bankruptcy you are required to undergo another course. The debtor’s education course provides insight on how you can properly manage your finances to avoid insurmountable debt.

Getting A Bankruptcy Discharge.

After all the necessary documents have been submitted and are found by the court to be in order, you will be granted a bankruptcy discharge. It will contain information on which debts will survive bankruptcy – meaning you will still have to pay them. These are things like child support, student loans, and recent tax obligations.

Case Closed.

Once all your non-exempt assets have been distributed to pay your creditors and if you are not involved in bankruptcy litigation, the court will now close your case.

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