Filing for bankruptcy is often considered as a last resort for individuals and businesses who find themselves overwhelmed by debt. While it provides an essential relief mechanism, it isn’t always available to everyone. Understanding what disqualifies you from filing bankruptcies is just as important as knowing when you can apply. Both Chapter 7 and Chapter 13 bankruptcy come with specific eligibility requirements, and failing to meet these requirements can result in your case being denied.

It’s important to remember that bankruptcy isn’t a “one-size-fits-all” solution. The decision to file should be based on your financial situation, goals, and whether you qualify for one of the bankruptcy chapters. Let’s take a deeper dive into what you need to know about bankruptcy qualifications, common disqualifications, and how to avoid pitfalls during the filing process.

What Disqualifies You from Filing for Bankruptcy?

There are several key factors that can disqualify you from filing for bankruptcy. What disqualifies you from filing bankruptcies can be confusing, but knowing these disqualifications up front can save you time, money, and stress.

1. Income Limitations (Chapter 7)

For Chapter 7 bankruptcy, commonly known as liquidation bankruptcy, you must pass a means test. The means test is designed to determine whether you have the income to pay back some or all of your debts. If your income exceeds the median for your state or if you have sufficient disposable income to repay creditors, you may be disqualified from filing Chapter 7.

• If you fail the means test, you might still qualify for Chapter 13 bankruptcy, which is a debt-reorganization bankruptcy where you make monthly payments over a 3 to 5-year period.

For individuals with higher incomes, Chapter 7 may be unavailable, regardless of the amount of debt. In such cases, you must consider alternative options like Chapter 13 or debt settlement.

2. Previous Bankruptcy Discharge

Another significant factor that can disqualify you is your history of filing for bankruptcy. Specifically, if you’ve previously filed for Chapter 7 bankruptcy and received a discharge, you must wait eight years from your previous filing before you can file again.

Similarly, if you previously filed for Chapter 13 bankruptcy, you must wait six years unless you paid back a substantial portion of your debt under the plan.

• These time restrictions are in place to prevent individuals from repeatedly using bankruptcy as a way to avoid paying their debts.

3. Fraudulent Actions

Bankruptcy is intended to help those who are genuinely struggling with debt, but it can also be exploited by individuals who attempt to game the system. Fraudulent activities, such as hiding assets or making false statements during the bankruptcy process, can disqualify you from filing.

Some examples of fraudulent actions include:

• Transferring assets to friends or family just before filing to avoid liquidation.

• Failing to disclose certain assets or debts on your bankruptcy petition.

• Making false claims about your financial situation or withholding important documentation.

If the court finds that you’ve engaged in fraudulent activities, your case can be dismissed, and you could face criminal charges or fines.

4. Dismissal of Prior Bankruptcy Case

If you had a bankruptcy case dismissed in the past due to noncompliance, such as failing to appear at a hearing, failing to submit necessary documents, or violating a court order, you may be disqualified from filing again for 180 days. The court will view these actions as non-compliance, which can harm your ability to file in the future.

To prevent this from happening, make sure to follow all instructions, attend hearings, and submit the required documents on time. Ignoring these obligations can significantly impact your eligibility.

5. Failure to Complete Credit Counseling

Before filing for bankruptcy, you are required to complete a credit counseling course with an approved agency. This must occur within 180 days prior to your bankruptcy filing. The goal of this course is to help individuals explore alternatives to bankruptcy and to give you tools for managing your finances in the future.

If you fail to complete this course, your bankruptcy case may be dismissed. This requirement is mandatory under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and failure to comply can significantly delay or derail your filing.

Who Qualifies for Chapter 7 Bankruptcy?

Chapter 7 bankruptcy allows individuals to discharge most unsecured debts such as credit cards, medical bills, and personal loans. It’s often the preferred option for those with limited income and no assets they want to keep.

To qualify for Chapter 7, you must meet the following conditions:

• Pass the means test: This test assesses your income compared to the median income in your state. If your income is higher than the median, you may be disqualified from Chapter 7 and may need to file for Chapter 13 instead.

• Do not have a recent bankruptcy discharge: If you’ve already received a Chapter 7 discharge within the last eight years, you cannot file for Chapter 7 again.

• Have little or no disposable income: Chapter 7 is intended for individuals who have little ability to repay their debts. If you have disposable income, Chapter 13 might be a better fit.

Who Qualifies for Chapter 13 Bankruptcy?

Unlike Chapter 7, Chapter 13 bankruptcy is a debt repayment plan that allows you to keep most of your assets while paying off your debts over time. If you have a regular income and can commit to a monthly payment plan, Chapter 13 might be the right choice.

To qualify for Chapter 13, you must meet these criteria:

• Regular income: You must have a steady source of income, whether from a job, business, or other source.

• Debt limits: Your unsecured debts must be under $419,275, and your secured debts must be under $1,257,850 (these limits change periodically).

• Commitment to a repayment plan: You will need to propose a repayment plan to pay off your debts over three to five years, depending on your income and the amount you owe.

• Recent bankruptcy dismissal: You must not have had a bankruptcy case dismissed in the past 180 days due to noncompliance.

Chapter 13 offers a way to save your home from foreclosure and avoid liquidation, but it requires a steady income and a commitment to repayment.

What Mistakes or Actions Can Prevent a Successful Bankruptcy Filing?

Filing for bankruptcy isn’t as straightforward as it might seem. A number of common mistakes can cause your bankruptcy case to fail or result in its dismissal. What disqualifies you from filing bankruptcies successfully is largely tied to missteps during the filing process.

Here are some critical mistakes to avoid:

• Not providing accurate or full documentation: If you fail to disclose all of your assets, liabilities, income, and expenses, the court may dismiss your case or deny your discharge.

• Not following through with court orders: Missing deadlines or failing to attend required hearings can result in the dismissal of your case.

• Not participating in required programs: Bankruptcy filers must complete credit counseling before filing and financial management courses afterward. Failure to complete these steps can result in a dismissed case.

How Recent Bankruptcies Can Affect Your Eligibility to File Again

If you’ve filed for bankruptcy before, the court places time limits on how often you can file. These restrictions are put in place to prevent abuse of the system.

For example:

• Chapter 7 to Chapter 7: You must wait eight years before filing again.

• Chapter 13 to Chapter 13: You must wait two years before filing again.

• Chapter 7 to Chapter 13: You must wait four years before filing.

• Chapter 13 to Chapter 7: You must wait six years.

These waiting periods can feel like a significant hurdle, but they are in place to prevent repeated filings.

When Should You Speak With a Bankruptcy Attorney?

If you’re considering bankruptcy, it’s important to seek legal advice early. A bankruptcy attorney can help you understand whether you qualify for bankruptcy, guide you through the filing process, and help ensure that you comply with all the legal requirements. The sooner you reach out to a bankruptcy attorney, the better the chances of avoiding costly mistakes.

Conclusion

Filing for bankruptcy can provide much-needed relief for those facing overwhelming debt, but it’s essential to understand what disqualifies you from filing bankruptcies before you move forward. Navigating the eligibility requirements and filing process correctly is critical for a successful outcome.

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Frequently Asked Questions

Can I be denied bankruptcy if I make too much money?

Yes. If your income exceeds the median for your state and you fail the means test, you may be disqualified from filing Chapter 7 bankruptcy. However, Chapter 13 bankruptcy may still be an option for you.

Does hiding assets disqualify me from bankruptcy?

Yes. Hiding assets or engaging in any form of fraudulent activity during the bankruptcy process can result in your case being dismissed and even criminal charges.

Can I file for bankruptcy if I’ve done it before?

Yes, but there are time restrictions. If you’ve filed for Chapter 7 before, you must wait eight years before filing again. If you’ve filed for Chapter 13, you must wait six years, unless you’ve paid off a significant portion of your debts.