Do I Qualify to file for Chapter 7 Bankruptcy?

Image illustrating couple considering filing chapter 7 bankruptcy

Many of our clients ask us, “Do I qualify to file for Chapter 7 Bankruptcy?”  In the United States, it is assumed that everybody has the ability to file bankruptcy.   Generally, there are only three main reasons why you may not be “eligible” (or it be a good idea) to file Chapter 7 Bankruptcy .  Here are 3 main reasons why you may not “qualify” for Chapter 7 Bankruptcy:

Reason #1: You Cannot Pass the Bankruptcy “Mean Test” in Indiana

The bankruptcy “means test” is the method that determines whether your income “qualifies” you to file under Chapter 7 (total debt relief) or forces you to file under Chapter 13 (an affordable monthly debt repayment plan that last 3-5 years).    The means test was created to limit the filing of Chapter 7 to those who cannot afford to repay their debts.   If you can afford to repay a substantial amount of your debt according to the “means test,” then the bankruptcy code forces you to file a Chapter 13 bankruptcy where you can pay some of your debts back.


Reason #2: You Have “Too Many Assets” to file Chapter 7 in Indiana

Indiana’s Bankruptcy Exemptions only protect a certain amount of property per bankruptcy filer.   Because our website covers this in more detail in a separate section, we will only briefly describe some of the basic Indiana Bankruptcy exemptions: 1) $17,600 for your residence, $9,350 for all forms of personal property and “other” real property, and 3) $350 in cash or cash accounts.   It is important to note that this Indiana Exemption list (of things protected – the amounts you can keep) doubles for a married couple filing.  Also, this list here is NOT exhaustive of all Indiana exemptions.   In certain, rare situations, our clients’ assets exceed what they can keep under the bankruptcy exemptions.   In these situations, many of our clients CHOOSE to file under Chapter 13 instead of Chapter 7.   These clients use Chapter 13 to pay back creditors to “extend” their bankruptcy exemption (or protection) to allow them to keep ALL their property.  Therefore, when considering “eligibility” for Chapter 7, it is important to check whether Indiana’s bankruptcy will protect ALL your assets.

Reason  #3: You Filed Chapter 7 Too Recently to Re-File Chapter 7

Chapter 7 bankruptcy can only be filed every 8 years.   Therefore, every time a person near the Indianapolis area wants to file Chapter 7 for a second time, it is important to check if any previous bankruptcy has been filed within 8 years.   Remember, you must go from the FILING DATE (not the discharge date) of the previous case to make sure that the proper 8 years have past.   If 8 years have not passed since you filed Chapter 7 bankruptcy previously, you will still very likely be eligible for some form of Chapter 13 bankruptcy.   A Chapter 13 case can also be used to stop your creditors and can also be a very powerful solution dealing with debt.


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