What if You Don't Meet the Threshold for Chapter 7 Bankruptcy?


Chapter 7 bankruptcy law establishes a threshold for filing. The threshold is half the median income for the state the petitioner lives in, and that means anyone who makes less than that amount pretty much automatically qualifies.

Do you still have any options if you don't meet the threshold? Here's how a Chapter 7 bankruptcy lawyer will approach the situation.

Document Your Financial Circumstances

Not meeting the threshold doesn't mean you're out of luck. It just means that the easiest path to successfully filing for Chapter 7 relief is closed to you. The court won't assume you're eligible, but that doesn't mean there isn't anything else you can do.

Foremost, you'll want to present your financial situation to a Chapter 7 bankruptcy lawyer. Collect all documentation you can find that will attest to your situation. You'll want at least your last two years' federal tax returns, and it's also wise to present the last three months' pay stubs. If you're currently on unemployment, provide whatever documentation you have of what you're getting as UI.

You'll also need to document all of your outstanding debt obligations. This includes utility bills, credit card payments, personal loans, mortgages, and vehicle loans. If you can document that you owe it to a creditor, then you need to name the creditor and state how much you owe.

Make copies of everything. Store the originals safely. Present the copies to the attorney, and then let them review everything. If you do make too much income or have too little debt for Chapter 7, you might at least still be able to seek relief under Chapter 13 with a restructured payment plan.

Determine Your Eligibility

In the absence of the close to automatic qualification for being under the median income for your state, your eligibility will be based on how dire your financial situation is. The court will look at your circumstances and a judge will determine if your debts are so bad you have no hope of ever digging out from under them even if you had a repayment plan.

A judge might elect to appoint a trustee to review the materials if the case seems especially complex. The trustee saves the judge's time by serving as an officer of the court. They can make a recommendation to the judge after checking into the merits of the petition, and then the judge can elect to follow the recommendation, make adjustments, or reject the case.

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On Your Side During Bankruptcy

Declaring bankruptcy is not easy. Deciding that you have no other way out from underneath your debt and making the call to actually file bankruptcy paperwork is challenging from a mental and emotional perspective. But do you know what can help? Having a good bankruptcy attorney on your side. An attorney can help you navigate the sometimes complex legal jargon associated with bankruptcy filings. They can also help you assess your situation and determine which chapter you should file under. Learn more about bankruptcy attorneys and the guidance they offer on this website. This is a good place to start if your debt is getting unwieldy.

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