In a recent year, more than 477,000 consumers and businesses filed for Chapter 7 bankruptcy in United States Bankruptcy Courts across the country. This type of bankruptcy is faster than Chapter 13, so consumers can move forward with a clean slate much sooner. However, bankruptcy law prohibits just anyone from filing a Chapter 7 case and sets out criteria you must meet to be eligible.
The best way to know if you qualify for Chapter 7 bankruptcy is to discuss your circumstances with an experienced bankruptcy attorney in Arizona. The following is some general information about Chapter 7 eligibility.
Chapter 7 Requirements Under the BAPCPA
Prior to 2005, there were few eligibility requirements for Chapter 7 filers, and almost any consumer could file for liquidation bankruptcy. However, that year, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). While this law was presumed to protect the interests of consumers, in reality, it imposed new requirements that made it significantly more difficult – or impossible – for consumers in certain situations to file for Chapter 7 bankruptcy.
Specifically, some added requirements under the BAPCPA include:
- Passing the “means” test
- Residency requirements
- A longer waiting period if you have a previous Chapter 7 case
Passing the Means Test in Arizona
Perhaps the most drastic requirement added by the BAPCPA is passing the means test. The goal of this requirement is to disallow people who earn enough income to make debts payments from filing for liquidation bankruptcy. Put simply, if you are a high income-earner, you might not qualify for Chapter 7. There are only a few exceptions to the means test requirement, as follows:
- You are a disabled veteran, and your debts were incurred during your active duty
- You are currently a member of the National Guard or military reserves
- Over half your debts are not consumer debts, or were incurred for business purposes
If you do not fall into one of the above exceptions, you will need to show that you pass the means test for a Chapter 7 case to proceed.
The means test measures whether your household earns more than the median income for a household of the same size in Arizona. The Department of Justice reports median income levels for each state, and these can change regularly. The means test considers all sources of income you received for the previous six months. If this amount is below the current median in Arizona, you pass the means test. If it is higher, you may still be able to pass the means test if your qualified expenses are sufficiently high relative to your income. If your income is higher than the median, and you do not have sufficiently high qualified expenses, then you do not pass the means test and cannot file for Chapter 7 bankruptcy.
BAPCPA also imposed residency requirements for you to file a Chapter 7 case in Arizona and utilize Arizona laws, such as the property exemptions. Knowing which property exemptions you will need to use is essential, as this is how you will protect as much of your assets and property as possible from liquidation.
To meet the residency requirement, you must have lived in Arizona for at least two years (730 days) prior to filing your case. If you lived in different states in the past two years, you must determine in which state you lived during the 180 days prior to the two-year period, and that is the state whose exemption laws you must use. This is a complex determination in some cases while, in others, it is straightforward.
Previous Bankruptcy Cases
The BAPCPA also lengthened the amount of time you must wait to file a new Chapter 7 case if you previously received a Chapter 7 discharge. You must wait eight years from the filing date of your previous successful Chapter 7 case to be eligible to file a new case. If you previously received a Chapter 13 discharge, you will need to wait six years from the date you filed that case, before filing a Chapter 7 case. There are additional waiting periods if you had a prior bankruptcy case dismissed, or you voluntarily dismissed a case due to certain circumstances.
Discuss Your Situation with an Arizona Bankruptcy Attorney Right Away
Many people reap the benefits of a Chapter 7 discharge each year, though not everyone who wants to file under Chapter 7 qualifies to do so. It is highly important to have the assistance of a qualified bankruptcy attorney who regularly handles this type of case in Arizona.
Yusufov Law Firm regularly assesses whether people are eligible for Chapter 7 and can help report income information in the proper manner to help improve your chances of qualifying when possible. If you are considering bankruptcy and would like to discuss your options, please contact us online, or call 480-788-0098 in Phoenix/Mesa or 520-745-4429 in the Tucson area. Consultations are free with no obligation, and we look forward to hearing from you.