By Philip Tirone
You can also watch the full episode for more context, or keep reading below where I answer the most common questions I get about who Chapter 7 is really for.
If you are trying to figure out where you stand, one of the easiest ways to get clarity is to schedule a free bankruptcy consultation.
Frequently Asked Questions
- Who qualifies for Chapter 7 bankruptcy?
- How is the means test calculated?
- Do I have to be unemployed to file Chapter 7?
- Can I still qualify if I make slightly above the median income?
- What happens if I fail the means test?
- Can I lose my house or car in Chapter 7?
- How often can you file Chapter 7 bankruptcy?
FAQ: Who qualifies for Chapter 7 bankruptcy?
Whether you qualify for Chapter 7 bankruptcy depends on whether your financial situation shows that you have the means to repay your debts. In practice, this is determined by looking at your income, your household size, and your expenses. Most people are surprised to learn that they do qualify once those numbers are reviewed carefully. You do not need to be completely broke to qualify. Is repayment realistic based on your actual financial picture? If not, you may qualify.
FAQ: How is the means test calculated?
The means test is calculated using your income from the past six months compared to the median income for your state and household size. If your income is below that median, you typically qualify right away. If it is above, there is a second step that looks at your allowable expenses to determine whether you still have any meaningful disposable income. This is where an attorney becomes important, because the calculation is detailed and small differences can change the outcome.
FAQ: Do I have to be unemployed to file Chapter 7?
You do not have to be unemployed to file Chapter 7. In fact, many people who file are working full time. The key question is not whether you have income, but whether your income leaves enough room after expenses to pay your debts.
FAQ: Can I still qualify if I make slightly above the median income?
You can still qualify if you make slightly above the median income, depending on your expenses. The second part of the means test looks at what you actually spend on necessary living costs. If those expenses reduce your available income enough, you may still pass the test. This is one of the most common areas where people assume they do not qualify when they actually do.
FAQ: What happens if I fail the means test?
If you fail the means test, it usually means Chapter 7 is not the right fit, but that does not mean you are out of options. In many cases, Chapter 13 becomes the alternative, allowing you to restructure your debt into a manageable payment plan. The important thing is that failing one path does not close the door on solving the problem.
FAQ: Can I lose my house or car in Chapter 7?
You can lose assets in Chapter 7, but most people do not because of exemptions. In many cases, your house and your car can be protected depending on the equity and the exemption laws in your state. This is why it is important to review your situation with an attorney before filing, so you understand exactly what is protected and what is not.
FAQ: How often can you file Chapter 7 bankruptcy?
You can file Chapter 7 bankruptcy once every eight years. This rule is based on the time between discharges, not just filings. Because of that limitation, it is important to approach the process strategically and make sure it is the right timing for your situation.
Disclaimer: The content on this blog is for informational and educational purposes only and does not constitute legal or financial advice. Watching our videos and reading our blogs does not create an attorney-client relationship. Always consult a licensed bankruptcy attorney or financial professional about your situation.
