Do I Qualify for Filing Bankruptcy?
With the passage of the Bankruptcy Abuse Prevention and Consumer Act of 2005, the legal parameters for who qualifies for bankruptcy protection and who does not qualify for federal bankruptcy protection have changed. The changes in law specifically impact who is eligible for Chapter 7 bankruptcy, who is eligible for Chapter 13 bankruptcy and who is altogether ineligible. According to current federal bankruptcy law, an individual meets the initial criteria for bankruptcy when, after scrupulously accounting for legitimate living expenses, he cannot be reasonably expected to pay off debts owed.
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Income
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If your income does not exceed the median income of your state of residence, you meet the basic eligibility requirement for filing Chapter 7 bankruptcy, which is a complete liquidation of your assets---with legally recognized exemptions---and full discharge of your debts. You could be eligible for filing Chapter 13 bankruptcy, which pays off all---or most---of your debt load in a court-supervised reorganization over a period of 3 to 5 years, if your income surpasses this income benchmark.
Unsecured Debts
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Only unsecured debts in which no collateral was pledged in attaining them are dischargeable in federal bankruptcy proceedings. Unsecured debts include credit cards, medical bills, noncollateralized loans and utility bills. If you have only secured debts, which are collateralized, you are ineligible for bankruptcy protection.
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Nondischargeable Debts
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Regardless of your financial situation, there are certain unsecured debts that bankruptcy courts deem nondischargeable. You cannot file for bankruptcy to liberate yourself from such legally binding obligations as alimony payments, child support and any monies owed from personal injury and wrongful death lawsuits. Most income taxes and student loans, too, are nondischargeable debts.
Bad Faith
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If you have amassed debts through fraudulent means, such as falsifying credit card or loan applications, you are prohibited from receiving federal bankruptcy protection. Any debt burdens acquired under false pretenses cannot, under any circumstances, be discharged in a bankruptcy court.
Luxury Purchases
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You do not qualify for bankruptcy if the debts you have are accrued are considered luxury purchases on credit cards within a 60-day window prior to the filing. If your credit card expenses during that time do not coincide with legitimate living expenses, you may not meet the legal requirements for discharge of your debts.
Cost of Filing
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This may be the ultimate irony of bankruptcy, but you must have sufficient cash to pay for it. At present, the filing fee for Chapter 7 bankruptcy is $299; for Chapter 13 bankruptcy, $274. In addition to this fee, you are required to take a financial counseling course prior to filing, and then at the end of the process, a credit-counseling course before receiving a final discharge---both approved by the bankruptcy court and with a nominal price tag attached to them. Most filers employ the services of a bankruptcy attorney, which costs them a minimum of $750 and usually $1,000 and more. While you are not required to file the required bankruptcy papers through an attorney, it is ordinarily a prudent idea to consult with and hire an expert on this complex subject matter.
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