Although many people believe that bankruptcy is available to everyone, this can be a deceptive assertion. There are restrictions on who may file for bankruptcy, which debts are eligible, and which form of bankruptcy may be filed.
Determining Eligibility
The largest qualification factor is registering for Chapter 7 bankruptcy. Chapter 7 bankruptcy laws are more restrictive, indicating that not everyone is eligible to file for bankruptcy under this chapter. To be eligible for Chapter 7, you must pass a means test, which compares your income, assets, and debts to the state's norms. In order to pass the means test and qualify for Chapter 7 bankruptcy, your financial situation must score at or below the state's median income level. If your score exceeds the state's median income level, you may not qualify for Chapter 7, but you may be eligible for Chapter 13.
In general, Chapter 13 eligibility is fairly straightforward. The majority of Chapter 13 applicants will qualify and be able to pursue debt relief through this route. Total debt is the primary factor that could disqualify you from filing for Chapter 13 bankruptcy. You may not be eligible for Chapter 13 if your unsecured debts exceed $336,900 or your secured debts exceed $1,010,650.
In addition, Chapter 7 or Chapter 13 bankruptcies may be denied if you have filed for bankruptcy within the past few years or have been involved in a prior case of bankruptcy fraud. In order to file Chapter 7, you must wait at least 8 years after a prior Chapter 7 discharge or 6 years after a prior Chapter 13 discharge. You must wait at least 4 years after a prior Chapter 7 discharge or 2 years after a prior Chapter 13 before filing Chapter 13.
Deserving Debts
Contrary to conventional belief, not all debts are eligible for protection under the bankruptcy code. In many instances, tax debts are not dischargeable in bankruptcy. For income tax debts to be discharged, they must be at least three years old and accompanied by an IRS-filed tax return. Student loan debts are also rarely eligible for bankruptcy protection, although they have been permitted in extreme cases under Chapter 13. Additionally, arrears on child support, alimony, and criminal restitution are typically ineligible for bankruptcy.
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