Overcoming bankruptcy requirements to qualify for your chapter of choice
Qualifying for Chapter 7 is subject to proof of compliance with numerous factors. In these cases, because unsecured creditors rarely receive repayment, little leeway is granted for technical defects or failure to strictly qualify under terms of law. The primary considerations to avoid initial automatic dismissal are as follows:
- U.S. citizenship is not mandatory if owing real property with the United States or territories. Individuals and corporations may file.
- An individual's disposable income must be less than the median leeway of income reported for state of residency, or conversely, must qualify under means testing criteria.
- Tax returns must be current.
- Individuals must complete credit counseling requirements during the 6 months before filing.
- A complete set of bankruptcy forms and schedules must be filed with clerk within 15 days from the first file date.
- All creditors must receive notice to become subject to the jurisdiction of the bankruptcy court.
Chapter 13 Requirements
Proposing Chapter 13 bankruptcy plan payments presumes the current ability to repay a portion of debts over time. In practice, debtors should begin making proposed payments within 30 days after filing to demonstrate financial ability to the court. If payments are not made prior to confirmation, the confirmation itself becomes far less likely. As a starting point for individual filers:
- Must be receiving regular income sufficient to pay living expenses and proposed plan payments.
- All tax returns for prior taxable years must be filed with the IRS.
- An individual debtor must complete a course provided by an approved credit counseling provider.
- The same form, schedule and notice requirements as in Chapter 7 cases, using Chapter 13 bankruptcy forms.
A person who is not currently earning income, yet whose average income over the last 6 months exceeds the maximum allowed under means testing requirements, does not qualify for either Chapter 7 or 13. In this instance, filing under Chapter 11 is permitted, and conversion to Chapter 7 if or when average income falls below the threshold qualification level.