The U.S. Bankruptcy Code provides several options for individuals facing unmanageable debt. One of these options is filing for bankruptcy under Chapter 7 protection, or liquidation bankruptcy. Liquidation of assets occurs when a debtor’s nonexempt assets are sold and the proceeds are split among the creditors according to the bankruptcy plan. After all nonexempt assets are sold and creditors paid, certain remaining debt is discharged (forgiven) and creditors can no longer seek payment on the debt. State and federal law governs which assets are exempt from creditors, meaning certain assets are not subject to liquidation and the debtor is able to keep these even after the bankruptcy proceedings are finished.
Potential bankruptcy filers must meet certain qualifications to successfully file under Chapter 7. These requirements include:
- Meeting the state income criteria and the means test
- Undergoing credit counseling
- Not having violated applicable bankruptcy proceedings and filings within the previous 180 days
The income criteria and means test vary by state. In Ohio, if you make less than the median income level you are automatically able to file for Chapter 7 bankruptcy. In 2010, the median income in Ohio was $41,873 for an individual and $52,216 for a couple. If you make more than the median income, you must qualify under a federal means test. The federal means test proves whether you can or cannot reasonably pay off creditors while also covering basic everyday living expenses.
In addition to meeting the income criteria and the means test, parties seeking a bankruptcy filing must also obtain credit counseling prior to any bankruptcy filings. Proof of credit counseling completion must be included with the bankruptcy petition, along with the most recent federal income tax return and a complete list of assets and liabilities.
A bankruptcy petition will be unsuccessful if, within the previous 180 days, a petition was dismissed for any of the following reasons:
- Willful failure to appear before the court
- Failure to comply with court orders
- The debtor voluntarily dismissed the petition after creditors sought relief from the court
Filing for Chapter 7 bankruptcy can be a complex process. If you are in financial trouble and are considering Chapter 7 bankruptcy proceedings, it is essential to contact a bankruptcy attorney to discuss your options and ensure all elements of eligibility are met prior to filing a petition.
