Who is eligible to file for Chapter 7 bankruptcy?

When filing for Chapter 7, there are some things that debtors should know to ensure they are prepared.

People who wish to file for bankruptcy in New York may be surprised to find out that there are several different types of bankruptcy to choose from. Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows people to discharge most of their accumulated debt and begin a fresh financial start. Although Chapter 7 is the most popular type of bankruptcy, not everyone is eligible to file, according to United States Courts statistics. Applicants must meet certain requirements in order to claim Chapter 7 and climb out from underneath the burden of extensive debt.

Passing the state means test

First, Chapter 7 applicants must pass the state means test, which ensures that the debtor falls at or below the state's median income range. In order to determine this, the debtor must add all sources of income together, then subtract certain expenses, such as money for clothes, food, utilities and other necessary expenses. The U.S. Census Bureau reported that as of May 2016, the state median income for New York is $62,451 for a family of two, and $72,074 for a family of three.

People who have an income that is over the state median wage may need to file for Chapter 13 bankruptcy, which helps debtors organize their finances into a repayment plan.

Mandatory credit counseling courses

According to the American Bar Association, debtors are required to take a credit counseling course at least 180 days prior to submitting their bankruptcy application. Credit counseling courses are designed to give debtors ideas on how to manage their money. This information may help prevent people from getting back into the same financial situation that led them to declare bankruptcy in the first place. A debtor education course is also mandatory when filing for Chapter 7. This class, however, is taken after filing for bankruptcy.

Filing the proper paperwork

In order to ensure that the bankruptcy process runs smoothly, debtors must submit the proper documentation. This paperwork includes the following:

  • Statement of financial affairs
  • Documentation of liabilities and assets
  • Current income, including evidence of payment from employers
  • Most recent tax return
  • Certificate of credit counseling

Finally, the debtor must pay all of the required fees to the court when filing the paperwork.

Getting answers to your questions

If you are considering filing for Chapter 7, or any other type of bankruptcy, you probably have questions regarding the seemingly complicated process. A New York bankruptcy attorney may be able to assist you by answering your questions and pointing you in the right direction when it comes to filing for bankruptcy.