In our last post, we began looking at the decrease in bankruptcy filings over the last six months. As we noted, the decrease was primarily in Chapter 7 filings, and there are good reasons for this. Commentators have said that there has been significant improvements in the economy, such as a decrease in unemployment, improvement in the real estate market, and an increased availability of credit.

All of this means that debtors are earning more money and may be under less pressure from creditors. This has probably resulted in fewer people needing to file for bankruptcy. In addition, more debtors are probably finding that they do not qualify for Chapter 7 bankruptcy because of the eligibility requirements. 

Chapter 7 bankruptcy involves very specific financial requirements, and these requirements will automatically bar certain debtors. Financial eligibility is based on the current monthly income of the state in which the filing is made. If the debtor’s current monthly income is more than the state median, the debtor must submit to the so-called means test to determine whether the filing is “presumptively abusive.” If the debtor’s aggregate monthly income over five years–excluding certain expenses–exceeds a certain amount, the filing is presumed to be abusive. This presumption may be rebutted by demonstrating that there are special circumstances which justify adjustments to the calculation. If the debtor is able to prove such circumstances, he or she may be able to overcome the presumption of abuse. Otherwise, the case will be dismissed or converted to a Chapter 13 bankruptcy.

In pursuing Chapter 7 bankruptcy, it is important to work with an experienced bankruptcy to submit an accurate filing and to receive guidance and advocacy throughout the process. This is particularly important in cases where a debtor is denied a Chapter 7 filing and is forced to convert to a Chapter 13 filing or has his or her filing dismissed altogether.