While most bankruptcies that occur in New York are Chapter 7 bankruptcies, not everyone is eligible for this type of bankruptcy. Chapter 7 bankruptcy effectively allows consumers to liquidate their non-exempt assets to pay off existing debts. Many people view Chapter 7 bankruptcy as a way to start over and wipe away all of a consumer’s unsecured debts.
Chapter 7 Bankruptcy Eligibility
In order to take advantage of Chapter 7 bankruptcy, a consumer must be eligible to file. Eligibility requires that:
- Consumer Has Not Recently Filed for Bankruptcy. There is a time limit on how frequently a consumer can file for bankruptcy. A consumer cannot have successfully filed for Chapter 13 bankruptcy within the past six years, or Chapter 7 bankruptcy within the past eight years, in order to be eligible for Chapter 7 bankruptcy. Then the consumer is ineligible to file for Chapter 7 bankruptcy again. If a consumer previously filed for Chapter 7 or Chapter 13 bankruptcy, but was not granted discharge of his or her debts, then a consumer is eligible for Chapter 7 bankruptcy.
- Consumer Has No Dismissed Bankruptcy Proceedings Within the Preceding Six Months. A consumer must not have had a bankruptcy proceeding dismissed within the previous six months in order to be eligible for Chapter 7 bankruptcy.
- Consumer Completes Prebankruptcy Counseling. In order to file for Chapter 7 bankruptcy, a consumer must sign up for, attend and complete prebankruptcy counseling with an accredited counselor, in accordance with 11 USC Section 109(h). The counselor will advise on whether Chapter 7 is right for the consumer, and may make repayment suggestions. The opinion of the counselor is not binding on the consumer.
- Consumer Can’t Make Too Much Money and Pass the Means Test. A consumer’s eligibility for Chapter 7 bankruptcy depends on whether the consumer can pass the means test. A consumer’s income from the past six months is compared to the median gross income of a similarly situated family, as determined by the Internal Revenue Service. The consumer’s income must be below the median gross income to pass the means test. Some consumers are generally exempt from the means test, including:
- Disabled veterans with debts that were incurred during active duty,
- Consumers who are active duty National Guard or military reservists, or have served as active duty within the previous two years,
- Consumers who hold business debts.
- Consumer Can’t Be Using Chapter 7 Bankruptcy to Defraud Creditors. If a consumer is using Chapter 7 because he or she needs it, that’s good. But a consumer cannot use Chapter 7 bankruptcy to try and defraud creditors. Hiding assets, lying about income or assets, and abusing credit are all ways that debtors have tried to defraud creditors. The court can dismiss a consumer’s bankruptcy case – or refuse to allow a consumer to receive a discharge in bankruptcy – if the court believes that the consumer is abusing the system.
Contact A New York Bankruptcy Attorney
Choosing to go through with bankruptcy is a tough decision, and consulting with an experienced bankruptcy lawyer is always a smart approach to handling your financial situation. A lawyer can advise you on your bankruptcy options, or help you develop a plan to avoid bankruptcy. Contact a Chapter 7 bankruptcy lawyer at the Bromberg Law Office, P.C. today to schedule an appointment.