Chapter 7 Eligibility

Not everyone can file for bankruptcy under Chapter 7. To qualify under Chapter 7 eligibility requirements, most debtors must fall under the means test and other legal requirements. However, disabled veterans whose debts occurred while they were on active duty will always qualify for a Chapter 7 bankruptcy. This is the only case where a debtor does not have to prove that he or she qualifies under the law for Chapter 7 Eligibility. If the debtor is a non-veteran, the court uses several questions to determine whether the individual can file under Chapter 7 or must file under Chapter 13 instead.

Questions the court will ask

Is the debtor’s income too high? Under the current bankruptcy laws, an individual cannot qualify for Chapter 7 bankruptcy if his or her current income exceeds the median income of a family of the same size in Illinois.

Can the individual repay these debts? In a test commonly known as the “Means Test,” the court must determine if the debtor has enough disposable income (not earned wages) to pay off the debts. If someone does have enough disposable income to repay the debts with bankruptcy, that person cannot file under Chapter 7.

Has the person filed recently? If someone previously filed for Chapter 7 bankruptcy within the last 8 years, that person cannot file Chapter 7. Similarly, if someone filed for Chapter 13 within the last 6 years, that person will not qualify for Chapter 7. In this type of case, the individual will likely need to file for Chapter 13 bankruptcy instead of Chapter 7 bankruptcy.

Has the individual received a dismissal  after filing for bankruptcy in the past? If someone had a Chapter 7 or Chapter 13 bankruptcy dismissed within the past 180 days, that person is likely not eligible to file for Chapter 7. A dismissal can stem from several situations:

  • Fraudulently filing or abusing the bankruptcy system in a previous filing.
  • Violating a court order
  • Requesting a dismissal after a creditor asked for a relief from the automatic stay

Did the individual knowingly defraud his or her creditors? Specific activities are not allowed in a bankruptcy case. The following activities could affect filing for Chapter 7 bankruptcy:

  • Hiding money or property from a spouse during divorce proceedings.
  • Unloading items to friends in order to hide them from creditors.
  • Lying about income or debts on a credit application.
  • Amassing massive debts on luxury items when the individual knew those items were not affordable.

In a filing for Chapter 7, the debtor must file the papers stating that everything in the filing is true. These papers are referred to as “penalty of perjury” papers. For example, the person filing for bankruptcy must state that he or she is not using a false Social Security Number and not providing false information about property or finances.

Not all cases will qualify for Chapter 7 eligibility. An individual’s financial situation may require filing for Chapter 13 instead of filing for Chapter 7. And if the court finds that an individual lied in the filing, deceit could lead to dismissal of the case and fraud charges.