Qualifications for Filing Chapter 7 Bankruptcy in Alabama

Prior to 2005, any Alabama resident could file for Chapter 7 bankruptcy without qualification. However, the Bankruptcy Abuse Prevention and Customer Protection Act of 2005 implemented a series of tests and regulations that essentially requires debtors to have a low level of monthly disposable income in order to qualify for Chapter 7.

Median Income

The first test implemented by the new legislation of 2005 is a comparison of your average monthly income to the median income in Alabama for a family of your size. Using official bankruptcy Form 22A, you compute your average monthly income for the previous six months, then multiply this figure by 12 to arrive at your annualized current monthly income (CMI). Using U.S. Census Bureau data, you must then compare your CMI to the median Alabama income. If your income falls below this figure, you qualify to file Chapter 7 bankruptcy in Alabama. If your income is higher, you must continue with Form 22A and complete the so-called "means test."

Means Test and Chapter 13 bankruptcy

The means test is an extensive series of calculations that determines whether or not you have too much disposable income, after subtracting allowable expenses, to file Chapter 7 bankruptcy. The purpose of the means test is to screen out higher-income debtors and force them to instead file Chapter 13 bankruptcy. Chapter 13 bankruptcy requires you to make payments to your creditors based on your ability to pay, rather than simply discharging your debt as in a Chapter 7.

Disposable Monthly Income

According to the means test calculation, if 60 times your monthly disposable income exceeds $11,725, you cannot file Chapter 7 bankruptcy in Alabama. If this figure falls between $7,025 and $11,725, you must perform further calculations to see if your income is sufficient to pay at least 25 percent of your non-priority unsecured debt, such as credit card debt. If your 60-month disposable income falls below $7,025, you qualify to file Chapter 7.

Totality of Circumstances

Even if you qualify to file Chapter 7 bankruptcy via the median income and means tests, your case still may be dismissed or pushed into a Chapter 13 bankruptcy. Once you file your petition, the U.S. Trustee may examine the "totality of circumstances" to determine if you still do not qualify for a Chapter 7 bankruptcy. The totality of circumstances provision applies mainly to debtors that claim high expenses against income that the trustee disallows, such as extravagant personal expenses.

References

• United States Courts: Bankruptcy Process
• U.S. Trustee Program: Means Testing
• U.S. Trustee Program: Census Bureau Median Family Income by Family Size
• The Bankruptcy Site: Alabama Bankruptcy Exemptions
• Chapter 7: Alabama Bankruptcy
• NOLO: The Bankruptcy Means Test -- Are You Eligible for Chapter 7?

Resources

• United States Courts: Chapter 7
• United States Courts: Chapter 7 Statement of Current Monthly Income and Means-Test Calculation
• Filing for Bankruptcy Online: Definition of Disposable Income in the Bankruptcy Process
• Law Office of Gary R. Stickell: Bad Faith or the Totality of Circumstances as Abuse of Chapter 7
• U.S. Trustee Program: Bankruptcy Abuse Prevention and Customer Protection Act of 2005