Consumer bankruptcy

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What is consumer bankruptcy?

Chapter 7 bankruptcy is a type of bankruptcy in which certain property is sold and used to repay your debts. If you don’t have property that can be resold, many of your debts will be discharged, or cancelled, at the end of the bankruptcy case.

Not everyone is eligible to file Chapter 7 bankruptcy. Here is a list of criteria that qualifies you for bankruptcy.

You must pass the bankruptcy means test.
The bankruptcy means test compares your monthly income of the state’s median family income for a family of your size. If your monthly income exceeds the state’s median income, you may not be able to file Chapter 7 bankruptcy. The means test is required if more than half your debt comes from consumer purchases rather than business, tax, or tort debts. Tort debts are debts for injuries or damages you caused to someone else.

You are an individual, married couple, or small business owner.
You can’t file consumer Chapter 7 bankruptcy on behalf of a corporation, LLC, or partnership. Instead, you must file a business Chapter 7 bankruptcy which has a different process than what’s discussed here.

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You can Chapter 7 bankruptcy for consumers if:

You are an individual
You are married and filing jointly with your spouse
You are a sole proprietor and have personal liability on some business debts
You are half of a business partnership with someone other than your spouse and which to file bankruptcy on those business debts that you have personal liability.
You have not had a recent bankruptcy discharge.

You aren’t legally able to file Chapter 7 bankruptcy if you had a previous Chapter 7 bankruptcy discharge within the past 8 years, or a Chapter 13 bankruptcy discharge within the past 6 years. The filing period starts from the date your previous bankruptcy was filed rather than when the bankruptcy was discharged.

You have not had a recent bankruptcy dismissal.

You can’t file Chapter 7 bankruptcy if you had a bankruptcy dismissed within the past 180 days for any of these reasons: you violated a court order, abused the bankruptcy system, made a fraudulent bankruptcy filing, or requested a dismissal because a creditor requested the automatic stay be lifted.

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You must receive credit counseling.

To file any type of bankruptcy, you must receive credit counseling from a government-approved credit counseling agency. You don’t have to get counseling before filing bankruptcy, but you must complete it no more than 180 days prior to your bankruptcy discharge.

Part of the credit counseling must include a two-hour financial management course. Agencies that offer this course aren’t always non-profit, but they should be able to offer free or lower cost services to you if you can’t afford the full price. The Office of the U.S. Trustee has a state-by-state list of approved agencies.

If you don’t receive your credit counseling within the specified time frame, your bankruptcy case will be dismissed.

Get an attorney’s advice.

This isn’t legal advice. If you’re considering bankruptcy and aren’t completely sure whether you qualify, seek professional advice from a bankruptcy attorney.

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