CHAPTER 7

Can I File For Chapter 7 Bankruptcy?

Qualifying for Chapter 7 Bankruptcy Protection

In order to qualify to file for a Chapter 7 Bankruptcy, you must:

  • Reside in the U.S.
  • Have a place of business in the U.S. or own property in the U.S.
  • Have not had a bankruptcy case dismissed within 180 days prior to filing.
  • Pass one of the three Means Tests outlined in the Bankruptcy Code

At Judge Law Firm, we offer guidance for long-term debt relief strategies in Tucson, such as filing for bankruptcy. For most people, there are two types of bankruptcy, a Chapter 7 bankruptcy (fresh start) and Chapter 13 (wage-earner repayment plan). A Chapter 7 bankruptcy is generally preferred because it is a quicker, easier and less expensive form of bankruptcy. To qualify for Chapter 7 bankruptcy, you must pass a "means test." The means test has three parts and can get complicated.

First Test: Income Vs. Household Size

However, most people qualify under the first part and never have to complete parts two or three. The first part only compares household income and household size. Income is based on all before-tax household income over the previous six months. This includes all wages, commissions, pension, child support, government assistance, unemployment, family support, etc. Household size is based on the number of people sleeping under your roof. This can also get complicated if you share custody of children, or if you have adult children or other nondependents living with you. You would need to consult with an attorney to determine your household size according to the bankruptcy laws.

In Arizona, if your average monthly income falls below your household size (see chart below) you will qualify to file for Chapter 7 bankruptcy protection.

The Means Tests

In order to qualify for a chapter 7 bankruptcy you must pass an income test. If your income falls below the Arizona average income based on your household size (see chart below), you can file a simpler chapter 7 case.

ARIZONA MEDIAN INCOME BY HOUSEHOLD SIZE
HOUSEHOLD SIZE
YEARLY INCOME
MONTHLY INCOME

1 Person

$46,196

$3,850

2 Persons

$57,953

$4,829

3 Persons

$61,452

$5,121

4 Persons

$71,154

$5,930

5 Persons

$79,554

$6,630

6 Persons

$87,954

$7,330

* For each additional person, you can add: $8,400 per year, $700 per month

If your income exceeds the income guidelines listed above, you must fill out means test forms requiring detailed information about income and expenses. If you are found to have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that you cannot file a chapter 7 case, unless there are special circumstances.

This is a very complex area of law and calculations, and we highly recommend that you seek the services of an experienced attorney. A Tucson bankruptcy lawyer who cares.

Second Test: Allowable Expenses

If your income is too high, you may still qualify for Chapter 7 protection, but you must complete the second part of the "means test". The second test looks at specific allowed household expenses to determine what kind of payment to make in a Chapter 13 repayment plan. After completing this second part, if you have little or no discretionary income to make payments, then you are allowed to file a Chapter 7 bankruptcy. If you have more than $150 in discretionary income, you may be forced to file for Chapter 13 protection. A partial list of deductible expenses include: 1) taxes; 2) secure debts for home and vehicles; 3) child care expenses; 4) child support payments; 5) out-of-pocket medical expenses; 6) health and disability insurance; 7) regular charitable giving; 8) regular financial support of the elderly, chronic ill and disabled; 9) educational expenses and/or tuition for minor children; 10) court-ordered payments. The second test is very complicated, and can't really be described in a few paragraphs. You should consult an experienced bankruptcy attorney to perform this analysis properly and determine whether you qualify.

Third Test: Special Circumstances

If you have too much discretionary income, you may still qualify under the third test (special circumstances). Under this test, you list all the special circumstances and their financial impact that justify you being allowed to file under Chapter 7. One example is a recent disability that has dramatically reduced household income. Another is a separated couple with two households and higher than normal expenses. A petition claiming special circumstances is really a request to the U.S. trustee and possibly a bankruptcy judge to override the normal income and expense guidelines and make an exception in your case. These requests are highly scrutinized. If the U.S. trustee objects to your claim of special circumstances, then your case would be reviewed before the bankruptcy judge to decide whether to make an exception in your situation. If your request is denied, then you can convert your case to Chapter 13.

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