Do I have to "qualify" for bankruptcy? How will I know if I am eligible?

Chapter 7 Eligibility

If you are an individual with primarily Consumer Debts and you want to file a case under chapter 7, your lawyer will examine your finances to determine if you can afford to pay creditors. If you can, based on a set formula known as the "means test", you will not be eligible to file a chapter 7.

If you do, the court will either dismiss your bankruptcy case or you may choose to convert your case to chapter 13. If your income is at or below the median income for your state, the means test will not apply and you will be permitted to file for chapter 7.

If your income is above the median income for your state, the means test compares your monthly income, minus your permitted living expenses, to the amount of your Unsecured Debt to determine how much you could repay to creditors if you were in a chapter 13. Unsecured debts are those for which you have not given collateral. An example is credit card debt. Because this calculation is hypothetical and does not necessarily reflect your true financial condition, you may appear to be able to repay the minimum portion of your debts but you, in reality, cannot. In that situation, the court may permit you to stay in chapter 7. The means test is very complicated and you should talk to a lawyer who can help you decide the chapter under which to file.

Chapter 13 Eligibility

There are two principal requirements for eligibility in a chapter 13 case. First, you must have regular income, although this need not be from a job; regular benefit payments (such as unemployment or disability payments) or rental income would qualify. Second, you must not have debts over a certain amount. The debt limits are $1,081,400 in Secured Debt (like home mortgages and auto loans), and $360,475 in Unsecured Debt (like most credit card debt). These numbers go up every three years.