What Happens If You File but Don’t Qualify for Chapter 7?

Key Takeaways
  • To qualify for Chapter 7, you must pass a means test.
  • Due to the strict qualifications for Chapter 7, many must file Chapter 13 or choose another debt relief option.
  • While anyone can file Chapter 7, they will dismiss your case if the judge determines you do not qualify.

When you think of bankruptcy,Chapter 7 is likely the one you imagine. Once you file, you get immediate protection from the court. Filing stops all debt collection activity, including phone calls and letters from debt collectors, court proceedings, and the enforcement of existing court orders. In other words, it can stop actions such as wage garnishments, foreclosures, and debt collection calls.

The process takes about six months and eliminates debts without requiring you to repay creditors.

While anyone can file Chapter 7, you must qualify through a means test to get the benefits. For some, the means test is straightforward. You calculate your income and compare it to the mean income in your state based on your household size. If your income falls within the required parameters, you can file. However, knowing what income to count, what deductions the courts allow, and determining other ways you may qualify if you earn more than the median can require an attorney’s expertise.

What Happens if You File, and Then Discover You Don’t Qualify for Chapter 7?

If you can’t get approved for a discharge under Chapter 7, you must convert to a Chapter 13 petition or find another debt relief option.

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Debt Relief Options Beyond Chapter 7

Chapter 13 is generally available if you do not qualify for Chapter 7. You retain the bankruptcy protections offered under Chapter 7 but must repay creditors for five years before a judge will consider discharging any debt. It is usually possible to convert a Chapter 7 to a 13, with minimum fees.

Under Chapter 13, a judge must approve a repayment plan that uses 100% of disposable income to pay unsecured debts. You also have time to bring other past-due accounts current if you wish to retain assets. For example, you have more time to catch up on car payments or your mortgage, allowing you to keep the property. During this time, creditors may not repossess or foreclose on your property.

While in repayment, you are under the court’s supervision and must submit any change in income or employment along with annual tax returns to the trustee. Getting a raise, moving to a better-paying job, or receiving an inheritance, could increase your monthly payments.

If you fail to complete the plan, you could remain responsible for all your debts and lose the protections of the bankruptcy court.

Debt settlement is an alternative option that gives you more control over repayment. Both Chapter 13 and debt settlement allow you to pay less than you owe on unsecured debts. However, Chapter 13 requires oversight from the trustee and payments of 100% of your disposable income.

Two key differences are that a raise or better job could expedite your debt payoff in debt settlement.Chapter 13 requires five years of payments, and an increase in income or cash infusion will direct more money to repay creditors.

Second, missing a monthly contribution will slow down the negotiation process but will not automatically lead to a dismissal.

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Final Thoughts

If you cannot qualify for Chapter 7 but need the automatic stay protections, then Chapter 13 may be the best debt relief option. However, if you do not need more time to catch up on a car or house payment,debt settlement could be the best choice.

You can reduce the amount you owe creditors and control the repayment process. Getting a better-paying job or working a second job could speed up repayment and eliminate debts faster.

  • How much can I make and qualify for Chapter 7?

    Filing a Chapter 7 bankruptcy petition requires you to qualify. You must earn below the median income in your state based on your household size or pass the means test. The latter compares income with your debt load and may allow you to file even if you earn too much.

  • What are the debt relief options if I do not qualify for Chapter 7 bankruptcy?

    In most cases, you can choose between Chapter 13 and debt settlement. Both options are legal remedies allowing you to pay creditors less than the total amount owed. Chapter 13 provides additional bankruptcy protections such as stopping a foreclosure or repossession and giving you more time to repay creditors. On the other hand, debt settlementgives you more control over the process and can be faster and less cumbersome.

  • Is it hard to get approved for Chapter 7 bankruptcy?

    The qualifications for Chapter 7 are more stringent than Chapter 13. Based on your household size, earning less than the median wage in your home statewill typically qualify you for Chapter 7. Earning more requirespassing a means test, which has much stricter rules making it more difficult to qualify.