Chapter 7 Bankruptcy Laws Determine Debtor Eligibility

Written by Adam Peck Category: Nursing Homes January 23rd, 2013 3 min read

Chapter 7 bankruptcy laws determine which debtors are eligible. Before the changes to the bankruptcy code in 2005, a bankruptcy judge decided whether the debtor was qualified for Chapter 7. Not surprisingly, most debtors filed under this chapter. To prevent abuse by debtors, the current law no longer leaves the decision up to the judge. The debtor must now meet income requirements set by law.

Income Requirements:
To file for Chapter 7, the debtor’s income must not exceed the median income in their state. Under the bankruptcy code, a debtor’s income is calculated by averaging their monthly income over the past six months and multiplying it by 12. This is the debtor’s annual income.

If the debtor’s income exceeds their state’s median income, the debtor may still qualify for Chapter 7 if the debtor passes the “means test.” The means test determines whether, after the debtor pays other allowed monthly expenses, the debtor has enough disposable income to pay unsecured creditors. If so, the debtor may not file for Chapter 7. If the debtor does not have enough disposable income, then the debtor can file for Chapter 7.

The debtor must include in the calculation all sources of regular income from an entity or another person other than the debtor or the debtor’s spouse. It does not matter whether the income is taxable or nontaxable. Social Security benefit payments are excluded. The debtor must include the following income:

Wages, salary, tips, bonuses, overtime, and commissions
Gross income from a business, profession, or farm
Rent or other real property income
Interest dividends or royalties
Pension and retirement income
Unemployment compensation
Child or spousal support
State disability insurance
Credit Counseling Requirement
Before filing, a debtor must participate in credit counseling with a non-profit agency approved by the U.S. Trustee’s office. Credit counseling must occur within 180 days prior to filing the bankruptcy petition. Some debtors are exempt from this requirement, including those with a physical or mental disability and a debtor serving in active duty in a military combat zone.

Previous Discharges:
A previous discharge may disqualify a debtor. A debtor is ineligible if a previous Chapter 7 discharge occurred within the past eight years or if a previous Chapter 13 discharge occurred within the past six years.

Previous Dismissals:
A previous dismissal may bar the debtor from filing for Chapter 7. A debtor is ineligible if, within 180 days from the current filing, a previous Chapter 7 or Chapter 13 case resulted in a dismissal because the debtor violated a court order, failed to appear before the court, or the debtor requested a dismissal after a creditor requested the court to lift the automatic stay.

Share it

Questions? Check with Peck Today

Blog Lead Form

Elder Abuse and Neglect in Assisted Living Facilities

Elopement in Nursing Homes

Assisted Living Abuse

Settlement Reached in Assisted Living Facility Death

Assisted Living Abuse and Neglect Attorneys

Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.