New Jersey residents who have overwhelming debt may be interested in what it takes to be eligible for a Chapter 7 bankruptcy. Depending on the person’s financial situation, this may be the appropriate action in order to discharge debt.
In a Chapter 7 liquidation, debt is discharged in return for the sale of a debtor’s assets by a bankruptcy trustee. The proceeds from this sale are used to pay off creditors that hold the debt. Some of a debtor’s assets are exempt from this sale, and each state has their own list of the type of property that qualifies. In order to be eligible for Chapter 7, the debtor can be an individual, a partnership, or a corporation or some other type of business entity. Only an individual can have debt discharged, though. Additionally, the debtor’s income cannot be over a certain amount. This test, known as the means test, prevents abuse of the bankruptcy system.
Aside from having an income that does not meet the means test, there are other ways that a debtor can be ineligible for Chapter 7. If the debtor has not complied with a court order or appeared at a required court proceeding within 180 days prior to filing, they may not be eligible. If the debtor had dismissed this prior bankruptcy case voluntarily, this may also remove eligibility. The debtor must also have gone through credit counseling within that 180-day period.
Understanding whether or not one is eligible for Chapter 7 bankruptcy, or if such a move is appropriate, can be difficult without the help of an attorney. The attorney may be able to review an individual’s finances and help with filing or negotiating another type of debt relief plan with creditors.
Source: US Courts, “Liquidation Under the Bankruptcy Code“, August 20, 2014