Bankruptcy Eligiblity is a Moving Target

Don’t sit on your Bankruptcy Eligiblity: It’s a moving target
In January, Larry came to talk to me about Chapter 7 bankruptcy eligiblity. He had a car repossession and about $25,000 in charged off credit cards. He was planning to get married and hoped to buy a house in a few years. His fiancé warned him they could never buy a house if he didn’t fix his credit.
Great, I promised, we can do a Chapter 7 bankruptcy to do exactly what you want.
Last month, in August, he came back, ready to go. But meanwhile, he had lost his Chapter 7 bankruptcy eligibility.
In February, Larry got as $4.00 an hour raise. He lost Chapter 7 bankruptcy eligiblity.
How Did Larry Lose Eligiblity?
In January, Larry was making $34.00 per hour. But in February, he got a raise to $38.00 an hour. In Virginia, as of April 2025, $77,420.00 is the cut-off for automatic eligibility for a single person, no children. His raise put him over the limit. Instead of clearing all his debts, he’ is forced to keep paying through the bankruptcy court in Chapter 13 for another five years!
Instead of being easily eligible to get a mortgage in two years (assuming enough family income), he’d need one of the few lenders who will work with him to get court approval. That can be a trap!  Because Larry needs to show the court he can now afford to buy a home, the Chapter 13 trustee can say, Larry now can afford a bigger bankruptcy payment.
(Getting a mortgage in Chapter 13 is not hopeless. Here are two lenders who reach out to people in Chapter 13 bankruptcy: NEXA and Peoples Bank. I don’t know much about either one.)
Conclusion
Trump says his casino bankruptcies are “brilliant.”
Some people say that bankruptcy should be a last resort. On the other hand, Donald Trump says using the bankruptcy laws can be “brilliant.”
Either way, when you get to that point, remember that bankruptcy eligiblity can be a moving target. Whether a billiant move or a last resort, don’t misss your chance.
PS Being over the Income Cut Off Isn’t Always the End of Chapter 7 Bankruptcy Eligiblity
Being a few dollars an hour over the cut off for automatic eligiblity doesn’t always means you can’t file Chapter 7.  We do dozens of those ever year.  But there needs to be unusual budget factors to help you pass the means test.
Those budget factors that can help you get approved for Chapter 7 can include:

1. Child support
2. Help for elderly family
3. Back taxes
4. Major, on-going medical expenses
5. A really, really big car payment

Larry didn’t have any of those. When he lost his automatic income eligiblity, he was stuck in Chapter 13.
 
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