Do I Qualify For Bankruptcy?
Do I qualify for bankruptcy? Eligibility rules explained:
An individual does not have to be insolvent to qualify for bankruptcy. Having income, owning
property, or remaining current on some debts does not by itself prevent a bankruptcy filing.
Eligibility instead depends on factors such as income, the type and amount of debt, prior
bankruptcy cases, and the chapter selected.
Most consumers considering bankruptcy will look to Chapter 7 or Chapter 13. Chapter 7 is
available to most individuals, although income can affect eligibility, while Chapter 13 requires
regular income and imposes limits on the amount of debt. Prior bankruptcy cases may create
additional restrictions, and most individuals must complete credit counseling before filing under
either chapter.
Eligibility to file is separate from the relief bankruptcy provides. For example, a debtor may
qualify to file even if a prior bankruptcy prevents another discharge, and some debts may remain
enforceable despite a discharge. Consequently, whether bankruptcy is available and what it can
accomplish require separate consideration.
Basic eligibility. The Bankruptcy Code sets relatively broad requirements for filing. Bankruptcy
is available to individuals who live, own property, or have a place of business in the United
States. A debtor does not need to owe more than the value of their property, or be insolvent, to
file bankruptcy.
Eligibility also does not depend on creditors having taken collection action. A debtor does not
have to wait for a foreclosure, repossession, wage garnishment, or collection lawsuit before
filing. Meeting these basic requirements, however, does not mean that every bankruptcy chapter
is available. Chapter 7 and Chapter 13 have additional eligibility requirements.
Chapter 7 eligibility. Chapter 7 is available to most individuals and can discharge many debts.
Income can affect eligibility, but owning a home, vehicle, bank account, retirement funds, or
other property does not prevent a Chapter 7 filing. However, a debtor who qualifies may still
own property that is not protected from creditors, and qualifying does not mean that every debt
will be discharged.
Chapter 13 eligibility. Chapter 13 is available only to individuals, including sole proprietors,
and requires regular income to make payments under a repayment plan. That income does not
have to come from wages and may include self-employment income or other regular sources.
Chapter 13 also limits the amount of secured and unsecured debt a debtor may have. Secured
debt is backed by property, such as a home or vehicle, while credit-card balances, medical bills,
and many personal loans are typically unsecured. Debtors who exceed the applicable limits may
not qualify for Chapter 13.
Filing and discharge. Eligibility to file bankruptcy is separate from eligibility for a discharge. A
discharge eliminates personal liability for covered debts and prevents creditors from continuing
to collect them. Most debtors who successfully complete bankruptcy receive a discharge
covering most of their debts.
A prior bankruptcy may prevent another discharge without preventing a new filing. A debtor
may therefore qualify for bankruptcy even though the new case will not result in another
discharge.
Prior bankruptcy cases. A previous bankruptcy does not automatically prevent another filing,
but certain dismissals can trigger a 180-day waiting period. The restriction applies when the
earlier case was dismissed because the debtor intentionally failed to follow a court order or take
the steps required to keep the case moving forward. A single missed Chapter 13 plan payment,
meeting, or hearing does not necessarily meet that standard.
The 180-day restriction can also apply when a debtor voluntarily dismisses a case after a creditor
asks to resume collection activity that bankruptcy had stopped. Courts differ over how closely
the dismissal must be connected to the creditor’s request.
Once the 180 days expire, the debtor generally may file again. If the earlier dismissal does not
trigger the 180-day restriction, the debtor may be able to file sooner, although the new case may
provide less protection from creditors or limit the ability to receive a discharge.
Prior discharges. A prior discharge raises a different issue from a prior dismissal. Bankruptcy
law limits how frequently a debtor may receive another discharge, with the waiting period
depending on the chapters involved. For example, a debtor seeking a Chapter 13 discharge must
wait four years after a discharge in a Chapter 7, Chapter 11, or Chapter 12 case. The waiting
period is two years when the earlier discharge was under Chapter 13.
These waiting periods do not necessarily prevent another bankruptcy filing. A debtor may
qualify to file a new case even when too little time has passed to receive another discharge.
Filing may still provide bankruptcy protections even if another discharge is unavailable. The
effect of a prior bankruptcy therefore depends on how the earlier case ended, whether the debtor
received a discharge, and when the case was filed.
Debts that survive bankruptcy. Even when a debtor qualifies to file and receive a discharge,
some debts may remain enforceable. Bankruptcy law excludes certain debts from discharge,
although the rules vary by chapter. Common examples include domestic support obligations,
certain taxes, many educational loans, restitution and governmental penalties, and debts arising
from fraud, embezzlement, or willful and malicious injury. The debtor remains responsible for
debts that are not discharged, and creditors may resume collection as permitted by law.
Secured debts present a related issue. A discharge can eliminate personal liability for a debt
without eliminating a valid lien against the property securing it. As a result, a mortgage lender or
vehicle lender may retain rights against the property even after the debtor’s personal liability has
been eliminated. Whether a particular debt will survive bankruptcy can be as important as
whether the debtor qualifies to file.
Credit counseling. With limited exceptions, an individual must receive credit counseling from
an approved nonprofit budget and credit counseling agency before filing bankruptcy. Generally,
the counseling must occur within the 180 days before filing and may be completed by telephone or online. It may even occur on the same day as the filing, provided it is completed before the
case is filed.
A temporary exception may apply when circumstances prevent the debtor from completing
counseling before filing. To qualify, the debtor must have requested counseling and been unable
to obtain it within seven days of the request. If allowed to file without completing counseling, the
debtor must complete it after the bankruptcy case begins.
A complete exemption from counseling is much narrower. It is available for incapacity,
disability, or active military duty in a combat zone. Incapacity means a mental impairment
prevents the debtor from making rational decisions about financial responsibilities, while
disability means a physical impairment prevents the debtor from participating in counseling in
person, by telephone, or online despite reasonable efforts.
A debtor who does not qualify for an exception or exemption must complete counseling before
filing. Failure to do so can result in dismissal even if the debtor otherwise qualifies for
bankruptcy.
Married debtors. Spouses may file bankruptcy together or separately. When filing together,
both must be eligible, although only one needs regular income to qualify for Chapter 13.
Whether both spouses should file depends on their debts, property, and income. A spouse who
does not file does not receive bankruptcy protection or a discharge, although that spouse’s
income may still affect the case.
Required financial information. A bankruptcy filing requires information about the debtor’s
creditors, assets and liabilities, income and expenses, and financial history. The debtor must also
provide evidence of recent payments from employers and a copy or transcript of their most
recent federal income tax return. The information must be complete, accurate, and submitted on
time. Failure to provide it can result in dismissal.
Filing fees. Filing bankruptcy requires payment of a filing fee, although debtors may be allowed
to pay in installments. Chapter 7 filers may qualify for a complete waiver if their income falls
below the applicable federal poverty guideline and they cannot afford installment payments.
Failure to pay the required fee can result in dismissal.
What eligibility means. Qualifying to file is only part of determining whether bankruptcy will
provide meaningful relief. A debtor who qualifies may own property that is not protected, have
debts that will survive bankruptcy, or be unable to receive another discharge because of a prior
case. Therefore, the answer depends not only on whether bankruptcy is available, but also on
what it can accomplish. Income, debts, property, and bankruptcy history can affect both the
chapter available and the relief the debtor ultimately receives.
Questions to consider before filing
Before filing bankruptcy, several questions can help determine whether Chapter 7 or Chapter 13
is available and what a bankruptcy case may accomplish.
Have you filed bankruptcy before? A previous case does not necessarily prevent another filing,
but how that case ended matters. Certain dismissals can prevent another filing for 180 days,
while a prior discharge may affect whether another discharge is available. The chapter of the
earlier case and when it was filed can also matter.
What are your income and debts? Income can affect Chapter 7 eligibility, while Chapter 13
requires regular income to make payments under a repayment plan. Chapter 13 also limits the
amount of secured and unsecured debt a debtor may have. Reviewing income and debts can
therefore help determine which chapter is available.
What property do you own? Owning a home, vehicle, bank account, retirement funds, or other
property does not prevent a bankruptcy filing. However, property can still affect what happens
during the case. A debtor may qualify to file while owning property that is not protected from
creditors. Eligibility and the treatment of property are separate questions.
What types of debt do you have? Bankruptcy can discharge many debts, but some obligations
may remain. Domestic support obligations, certain taxes, many educational loans, restitution and
governmental penalties, and debts arising from certain misconduct may survive bankruptcy.
Secured debts require additional consideration because a discharge can eliminate personal
liability without eliminating a valid lien against the property securing the debt.
If you are married, will one or both spouses file? Spouses may file together or separately.
Both must be eligible when filing together, although only one needs regular income to qualify for
Chapter 13. When only one spouse files, the other spouse does not receive bankruptcy protection
or a discharge, and the nonfiling spouse’s income may still affect the case.
Have you completed credit counseling? Most debtors must complete counseling through an
approved nonprofit agency before filing. Limited exceptions apply when circumstances prevent
completion before filing, and complete exemptions are available only in narrower circumstances.
Failing to complete counseling when required can result in dismissal even when the debtor
otherwise qualifies.
Can you provide the required financial information? A bankruptcy filing requires
information about creditors, assets and liabilities, income and expenses, and financial history.
Debtors must also provide certain income and tax information. The information must be
complete, accurate, and submitted on time.