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Ineligibility criteria for Chapter 7 bankruptcy filing

Chapter 7 bankruptcy proceedings have historically been dependent on the judge's and court's discretion. Most debtors were discharged even if they were found to be financially capable of repaying debts under Chapter 13. The new paradigm shift in the law, however, makes a distinction. Eligibility criteria are fixed for debtors to qualify for Chapter 7 bankruptcy proceedings.

Chapter 7 bankruptcy proceedings are based on the principle of "means." If a debtor is found to have a high-paying job, he may be found eligible for Chapter 7 bankruptcy proceedings. The means test is conducted by assessing six month's average income of the debtor in place of a bankruptcy application. Various factors may be taken into consideration when calculating the monthly income.

Salary, wages including tips and commissions, professional or business income, interest or royalty, rents incurred on property, pension, alimony or child support or workers compensation and unemployment compensation all may be taken into account to calculate the monthly income of the debtor. The debtor may then consult a professional in order to calculate the median income or average income.

If the debtor's income is eligible for bankruptcy filing, a few other criteria may be considered. In the event that the debt was already discharged after Chapter 7 proceedings for bankruptcy within the last eight months, the debtor may not be eligible.

Additionally, if, in the last six months, Chapter 13 bankruptcy proceedings had been initiated to set off the debt, the debtor may also be found ineligible for a bankruptcy filing. The statute of limitations plays an important role in bankruptcy cases. The debtor may also be found ineligible in the event that the previous bankruptcy case was dismissed within a period of 180 days.

If the court finds that the debtor had been involved in fraudulent activities in order to fool his creditors, bankruptcy proceedings may not be filed under Chapter 7. The debtor must also be forewarned that any falsified information provided while filing for Chapter 7 bankruptcy may cause serious legal consequences. The debtor may wish to consult with a legal professional in order to make sure that all documents are in order before filing for bankruptcy under Chapter 7.

Source: FindLaw.com, "Who Can File for Chapter 7 Bankruptcy?" accessed on Sept. 17, 2014

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