In our last post, we looked very briefly at the basic requirements for Chapter 13 bankruptcy in the context of discussing the myth that bankruptcy is an easy way out of financial troubles. As we noted, most debtors who file for bankruptcy do not look at bankruptcy as an easy way out, but rather as a last resort, and the eligibility requirements and effects of bankruptcy do a good job of screening out those who really just want an easy solution.

This can especially be seen with the eligibility requirements for Chapter 7 bankruptcy, which screen a lot of potential bankruptcy candidates out and leave them only the option for Chapter 13 bankruptcy. To qualify for Chapter 7 bankruptcy, a debtor must submit to something called the means test if the debtor’s income is above the median income in her or her state. 

If the debtor doesn’t meet strict financial requirements, the debtor’s filing is presumed to be abusive, though that presumption may be rebutted by showing that there are special circumstances. The debtor’s case is converted to a Chapter 13 filing or dismissed if the debtor cannot overcome the presumption of abuse. There are other requirements as well, but the means test is the big hurdle for most applicants to filing under Chapter 7.

Not everybody who qualifies for Chapter 7 bankruptcy should do so. It really depends on the debtor’s goals. Chapter 7 bankruptcy involves liquidation of certain types of property, so a debtor has to be prepared for that. Chapter 7 bankruptcy also remains on a debtor’s credit report for longer than a Chapter 13 filing. Those who are in the position of contemplating either Chapter 7 or Chapter 13 bankruptcy should work with an experienced attorney to evaluate their situation, evaluate their goals, and look at their options for debt relief.