Do I Qualify for Bankruptcy Chapter 7?

Do I qualify for Chapter 7 bankruptcy is one of the most common search terms by those investigating the possibility of filing for bankruptcy, as determined by the Google search engine.  In determining whether one is eligible to file a Chapter 7 bankruptcy, there are a number of criteria to consider.

First, what is the income of the debtor?  If a debtor or debtors have median household income that significantly exceeds the amounts determined by the Department of Justice, as determined by the debtor or debtors’ size of their household, then it is likely that Chapter 7 bankruptcy is not an available option.  The median income is determined through the compilation of census bureau data, and is adjusted for inflation.

For example, at the time of the writing of this article, the median income in the State of Florida for a one person household is $44,021, for a two person household is $54,655, for three persons the median income is $59,881, and for four persons, $71,480.

If the reader is contemplating that these figures are arbitrary and irrational, then he or she is probably correct.  Why would a three person household necessarily have more income than a one or two person household?  Why would a one person household be determined to be eligible for a Chapter 7 bankruptcy based upon an annual income of $44,021 but a two person household be eligible for bankruptcy with an annual income of $54,655?  Does a one person household require a full $44,021 to maintain his or her basic standard of living but a two person household only require an additional $10,000 more income?  Furthermore, does a three person household only require approximately $5,000 more income to meet their basic needs ($59,881) than the two person household?  Many four person households may only have one or two wage earners, and the remaining members are children or dependants.  The median income for a four person household is $71,480.  The children would typically bring no income to the household.  Why would a four person household then be determined to have a higher median income than a one person household with a single wage earner and no children?

Such determinations appear illogical and irrational because they are illogical and irrational.  However, that is the determination made by Congress in the 2005 bankruptcy law that significantly changed how the process of bankruptcy is administered.

In determining the size of the household, it is not typically necessary that the adult members of the household be married.  Sometimes, adult children can be included in the determination of family size, particularly when such adult children are disabled and unable to work.  The determination of family size appears to vary depending upon the jurisdiction in which the Chapter 7 bankruptcy is contemplated to be filed.  It is best to confer with an experienced and knowledgeable bankruptcy attorney when one is formulating a strategy which includes the possibility of filing a Chapter 7 bankruptcy.  Bankruptcy law is becoming progressively more complicated, and the mine fields are numerous.  Any wrong decision can produce disastrous consequences.

If a debtor significantly exceeds the median income, a Chapter 7 bankruptcy may not be an available option.  However, the debtor may be eligible to file a Chapter 13 bankruptcy.  The payment to the unsecured creditors in the Chapter 13 bankruptcy is essentially determined by the amount of remaining disposable income available to the debtor.  In determining disposable income, the debtor is again subjected to various criteria, some of which appear arbitrary and irrational.  The position of the bankruptcy attorney is to navigate such difficulties, and obtain the best remedy to his or her client based upon such poorly determined legislation.  It is true that an experienced, thoughtful and dedicated bankruptcy attorney can help his or her client achieve real benefits in addressing whatever issue of debt arises.  Sometimes, the best solution for a debtor is not to file bankruptcy, but to seek alternatives outside of bankruptcy.  Sometimes, the best solution is to do nothing.  As every person is different, so is the situation of every person as it relates to debt.

Other considerations in determining whether a debtor may file Chapter 7 bankruptcy is whether the debtor has filed a prior bankruptcy.  Currently, the debtor may only file and receive a discharge in a Chapter 7 bankruptcy every eight years.  The eight year period is determined from the date of the filing of the Chapter 7 bankruptcy.  If a debtor has filed a Chapter 13 bankruptcy and received a discharge, the debtor is prevented from receiving a discharge in a Chapter 7 bankruptcy for a period of 6 years, with some caveats.

There are other considerations in whether a Chapter 7 bankruptcy is beneficial to the debtor which do not relate to eligibility.  A debtor with a significant amount of assets which are not protected or exempt in a Chapter 7 bankruptcy can find those assets seized and liquidated by the Chapter 7 trustee.  Such a debtor may be eligible to file a Chapter 7 bankruptcy, but the consequences of such a filing may deliver a result that is deleterious to the debtor.

Jay Weller is a bankruptcy attorney who began practicing bankruptcy law in 1993.  Weller Legal Group is primarily dedicated to the representation of debtors in Chapter 7 and Chapter 13 bankruptcy proceedings.  However, our offices also offer many alternatives to bankruptcy.  Weller Legal Group is the last remaining law firm in the Tampa Bay area maintained for the representation of its clients in bankruptcy and debt related matters, with multiple offices.  Weller Legal has offices in Clearwater, Port Richey, Brandon and Lakeland, Florida and such offices are each conveniently located to those within and without the communities of their respective cities.

Image credit: Daniel Fela