Who can file a chapter 7 bankruptcy?
Who is permitted to file and maintain a chapter 7 case?
Any person who resides in, does business in, or has property in the United States is permitted to file a chapter 7 bankruptcy case except a person who has intentionally dismissed a prior bankruptcy case within the last 180 days. To be permitted to maintain a chapter 7 bankruptcy case a person must qualify for chapter 7 relief under a process called means testing.
What is means testing?
Means testing is a method of determining a person’s eligibility to maintain a chapter 7 case. Means testing is only required in situations where a chapter 7 debtor’s debts are primarily consumer debts as opposed to business debts. Under means testing a person whose current monthly income from all sources multiplied by 12 exceeds the median annual income, as reported by the U.S. Census Bureau, for the person’s state and family size, must show that he or she is not able to pay a minimum required amount per month for 60 months to his or her unsecured creditors from his or her disposable monthly income in order to be eligible to maintain a chapter 7 case. Disposable monthly income is a person’s current monthly income from all sources less the person’s permitted current monthly expenses. The chapter 7 case of a person whose disposable monthly income is such that he or she is deemed to be able to pay a minimal required amount per month or more to unsecured creditors for 60 months will be dismissed or converted to chapter 13 unless special circumstances exist.
What is a presumption of abuse and how does it affect the case?
When a chapter 7 case is filed by any ineligible person, under bankruptcy terminology that person is said to have abused the chapter 7 laws. When a person whose current monthly disposable income is such that he or she can afford to make monthly payments to unsecured creditors in the required amount, a presumption of abuse is said to arise in the case. If a presumption of abuse arises in a case, the case will be dismissed or converted to chapter 13 unless the person filing the case can prove the existence of special circumstances, such as a serious medical condition.
Who should not file a Chapter 7 case?
A person who is not eligible for a chapter 7 discharge should not file a chapter 7 case. Also, in most instances a person who has substantial debts that are not dischargeable under chapter 7 should not file a chapter 7 case. In addition, it is not usually advisable for a person with disposable income sufficient to make the required minimum payments to unsecured creditors to file a chapter 7 case, because a presumption of abuse will arise and the case will probably be dismissed or converted to chapter 13.