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Who is eligible for Chapter 7 bankruptcy?

For many Massachusetts residents struggling with debt, filing for Chapter 7 bankruptcy is the best way to get a fresh financial start. But, not everyone is eligible for Chapter 7. To file for Chapter 7 a debtor must satisfy a means test.

Under the first part of the means test, the debtor will be eligible for Chapter 7 if the person's monthly income falls below the median income of the person's state. The debtor's current monthly income is calculated based on a six-month average. Income includes wages, salaries and other earnings, income from a business, unemployment income, retirement benefits, child support payments and several other sources. It does not include Social Security retirement payments or tax refunds.

If the debtor's income is above their state's median, they are not automatically ineligible. The debtor can still file for Chapter 7 if they satisfy the second part of the means test. Under this part, debtors qualify for Chapter 7 if, after paying for basic necessities including housing and food, they do not have enough left over to repay some of their debt under a Chapter 13 payment plan.

If the debtor does not satisfy either part of the Chapter 7 means test the person will be ineligible for a Chapter 7 bankruptcy. For folks in this situation, however, Chapter 13 is usually still available as an alternative. Chapter 13 differs from Chapter 7 in that under Chapter 13 the debtor is required to repay some or all of their debt through a court-approved payment plan.

Source: Findlaw.com, "Who Can File for Chapter 7 Bankruptcy?" accessed July 30, 2016

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