Can you File for Chapter 7 Bankruptcy?

Most people file for Chapter 7 bankruptcy because of the three main reasons:

1. It is much faster then the other Chapters. With a little effort on your side, you can have the entire process over in next four to six months.

2. It is also simpler to file. No frequent visits to court are required.

3. There are no after payments. Once your bankruptcy is discharged that is it, you are debt free. (Under the 2005 bankruptcy law, not all debts can be discharged anymore so consult with your attorney before filling).

On the other hand, Chapter 7 has a catch, the court will decide whether you are allowed to file for it or not. One of the main reasons why you can be denied to file for Chapter 7 is your income. If it happens to be sufficient to payoff some of your debts (after your allowed living expenses have been counted in) then you might be forced to file under Chapter 13 bankruptcy law.

How to check if you can apply?

First thing you need to do is to calculate your average earnings in the last 6 months and compare it with average income for the state you live in. You will be allowed to file under Chapter 7 if your income happens to be lover or the same as the median income of the state you live in.

In case that your average income is higher than that, and you still want to apply for Chapter 7 bankruptcy you will have to go through one more test called the Means Test.

So what is a means test?

It is a test based on the results calculated for your allowed living expenses.

How to calculate my living expenses and what can I include in it?

It is actually quite easy to calculate it. Take all your income from one average month and deduct the following allowed expenses:

1) Utility bills, transport (gas), food, clothing. (Make sure to use IRS amounts for these or the court will not take it in to account).

2) Your secured monthly payments like child support, car loan, mortgage and tax.

After you finish with the calculation and your average disposable income per month is lover then $100, you have passed the means test and you stand a fair chance of being approved to file for bankruptcy under Chapter 7.

If on the other hand your disposable income happens to be more than that (figure most often mentioned is $166, but it can vary), you will most likely have to file under Chapter 13 of the bankruptcy law. That is unless you can provide evidence that there are some special considerations to be taken in your account.

For any figures between $100 and $166, it is best to consult with your attorney. Make sure to find an attorney that specialize in bankruptcy and credit repair and has the solid reputation.