No one ever plans that their financial life may spiral out of control to the point where they have to file for chapter 7 bankruptcy protection, but sometimes, despite a person's best intentions and planning, things happen. One of the most common reasons for filing for bankruptcy is due to unforeseen medical emergencies that necessitate long hospital stays. A month in the intensive care unit can wipe out most people's insurance policies and send them into debt. For others, bankruptcy is the result of poor decisions and planning. Regardless, filing for chapter 7 bankruptcy can be the answer for some people who are seeking to have their bills discharged and given a fresh start. Before filing for chapter 7 bankruptcy in the USA, it is important to do research and know all the details about filing for bankruptcy. Filing for bankruptcy has serious consequences that should not be taken lightly. Here are some common questions about chapter 7 eligibility that many people have when filing for chapter 7 bankruptcy in the USA.
1. What is the means test?
Under the United States Bankruptcy code, in order to be eligible to file for chapter 7 bankruptcy protection, individuals must first pass the means test. The means test is a way of screening out individuals so that they do not abuse the system set in place by chapter 7 for protection from creditors. Chapter 7 bankruptcy provides discharge of almost all debts, so is more favorable to debtors than chapter 13 bankruptcy, where a debtor has to repay the debt in a payment plan. Chapter 7 bankruptcy is designed to help those who are without jobs or who do not make enough income to ever pay off their debts, while chapter 13 is for people who have a steady job with regular income. The means test states that in order to qualify for chapter 7 protection, an individual must make less than the median income of the state in which they reside. The median income refers to the amount of money around which half of the population earns more and half of the population earns less. Thus, every state is different in its requirements for chapter 7 eligibility.
2. Can chapter 7 bankruptcy be revoked?
Chapter 7 bankruptcy protection can be revoked for a number of reasons. One reason that chapter 7 bankruptcy protection may be revoked is if a person does not attend and complete required credit counseling classes. These classes are mandatory in order to obtain a discharge of debts. Another reason for chapter 7 protection to be removed is if a person obtained chapter 7 protection by means of fraud or abuse.
3. Can chapter 7 status be changed?
Yes. Chapter bankruptcy status may be changed at the discretion of the courts or the bankruptcy trustee if protection was obtained through fraudulent means or through abuse. This could be the result of not reporting all assets at the time of the hearing or not reporting income correctly. Chapter 7 status can be changed to chapter 13 if a person earns more than $166.67 higher than the state median income at the time of the filing.
