What Disqualifies You from Filing Bankruptcy?

What disqualifies you from filing bankruptcies?

Understanding what disqualifies you from filing bankruptcies is critical for anyone seeking a fresh start through debt relief. Bankruptcy can be a powerful tool for those burdened by overwhelming debt, but it’s essential to know that not everyone qualifies. The process has strict eligibility criteria, and several factors may either disqualify you entirely or limit your available options.

Basic Eligibility Requirements for Bankruptcy

Before diving into what disqualifies you from filing, it’s important to understand the general eligibility criteria for Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 allows you to eliminate most unsecured debts like credit card debt, medical bills, and personal loans. However, it also requires you to pass the means test, which evaluates your income compared to the median income for your state. If your income is too high, you may not qualify for Chapter 7 and may have to consider Chapter 13.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a repayment plan that allows individuals with a steady income to pay off debt over three to five years. There are specific debt limits for Chapter 13:

• Unsecured debt: Must be less than $419,275
• Secured debt: Must be less than $1,257,850 (as of 2023)

If your debt exceeds these limits, you’ll be ineligible for Chapter 13 bankruptcy.

Common Disqualifications for Bankruptcy

There are several reasons why you might be disqualified from filing bankruptcy, or at least be limited in your options.

Previous Bankruptcy Filings

One of the most common disqualifications arises from recent bankruptcy filings. If you’ve filed for bankruptcy in the past, you may be restricted from filing again for several years. Here are the general rules:

• Chapter 7: You can’t file for Chapter 7 if you’ve previously filed for Chapter 7 and received a discharge within the past 8 years.
• Chapter 13: If you’ve filed Chapter 13 previously, you must wait 2 years before filing again. If you’ve already received a discharge in Chapter 13, you must wait 4 years before filing again.

These waiting periods are in place to prevent individuals from abusing the bankruptcy process.

Abuse of the Bankruptcy Process

Bankruptcy is intended to provide relief for those who genuinely need it. Abuse of the bankruptcy process, such as filing under false pretenses or hiding assets, can disqualify you from filing. Bankruptcy courts take fraudulent filings seriously, and penalties for abuse can include:

• Dismissal of your case
• Loss of dischargeability for your debts
• Criminal charges in extreme cases

High Income

If your income exceeds a certain threshold, you may not qualify for Chapter 7 bankruptcy. This is determined by the means test, which compares your income to the median income in your state. If your income is too high, you will be required to file for Chapter 13 instead, which involves a repayment plan rather than debt elimination.

Chapter 13 allows higher-income individuals to reorganize their debts into manageable payments over a period of years, while Chapter 7 is designed for those with little or no disposable income.

Certain Types of Debts

Some types of debts cannot be discharged in bankruptcy. Even if you qualify for bankruptcy, these debts will still need to be paid. These include:

• Child support and alimony payments
• Most student loans, unless you can prove undue hardship
• Certain types of tax debt
• Criminal fines and restitution
• Debts incurred through fraud or willful misconduct

These non-dischargeable debts cannot be erased by bankruptcy, even if the bankruptcy process is successful.

Can You File Chapter 13 if You’re Disqualified from Chapter 7?

If you’re disqualified from Chapter 7 bankruptcy, you may still be eligible for Chapter 13. Chapter 13 bankruptcy does not have an income test like Chapter 7, but it does have debt limits. If your debt exceeds the Chapter 13 debt limits, you won’t qualify.

Advantages of Chapter 13 Over Chapter 7:

• No need to pass the means test: Chapter 13 allows high-income individuals to repay their debts over time.
• Protection of assets: Chapter 13 allows you to keep your assets, such as your home or car, while repaying debts.

Legal Consequences of Bankruptcy Fraud or Abuse

Bankruptcy fraud is taken seriously by courts, and it can lead to criminal penalties or loss of the discharge of debts. Bankruptcy fraud can include:

• Failing to disclose all assets
• Making false statements on bankruptcy forms
• Concealing or transferring property to avoid its inclusion in bankruptcy

Fraudulent bankruptcy filings can lead to dismissal of your case, denial of debt discharge, and even criminal prosecution.

Key Reasons You Might Be Disqualified from Filing Bankruptcy

Not everyone who’s in debt qualifies for bankruptcy, and knowing what disqualifies you from filing bankruptcies can help you avoid costly legal setbacks. From prior bankruptcy discharges and high income levels to non-dischargeable debts and fraudulent filings, several factors can limit or entirely block your eligibility. It’s essential to understand your specific financial situation, review eligibility rules for Chapter 7 and Chapter 13, and consult with a bankruptcy professional to determine the best course forward. Being proactive about compliance can increase your chances of a successful filing and long-term financial relief.

Need Help Understanding Bankruptcy Eligibility? Talk to a Lawyer Today

If you’re unsure whether you qualify—or fear you may be disqualified from filing bankruptcy—get professional legal guidance. At Legal Brand Marketing, we connect individuals with experienced bankruptcy attorneys who can evaluate your financial profile and recommend the most strategic path forward. Whether you’re exploring Chapter 7 or Chapter 13, don’t navigate bankruptcy alone. Speak with a qualified attorney today for a free, no-obligation consultation.