Chapter 7 Eligibility
A petitioner must reside in or have a domicile, a place of business, or property in the United States in order to file a Chapter 7 bankruptcy. The petitioner must not have been granted a discharge under Chapter 7 or Chapter 11 within the last eight years or completed a Chapter 13 plan. The petitioner must not have had a bankruptcy filing dismissed during the preceding 180 days due to the debtor’s willful failure to appear before the court or failure to comply with an order of the court. Additionally, the debtor must not have voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they had liens. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, an individual debtor must receive a briefing on credit counseling and budget analysis from a nonprofit budget and credit counseling agency approved by the United States trustee and meeting standards set forth in the 2005 Act. Also, certain small business investment companies are now ineligible for Chapter 7 relief.
Bankruptcy judge considers whether granting debtor relief would constitute abuse or bad faith
Creditors and trustees are permitted to bring abuse motions for debtors who have more than the state median income. The bankruptcy court judge must consider, under the totality of the circumstances, whether or not it would be an abuse of the Bankruptcy Code to grant the debtor relief. Debtors above median income are subjected to a means test to determine if a presumption of abuse arises. A presumption of abuse arises if, after deduction of such expenses from income, the remaining amount over 60 months is at least the lesser of $10,000 or 25% of general unsecured claims, but not less than $6,000. The presumption may be rebutted if the debtor shows that income and expenses should be adjusted to account for special circumstances for which there is no reasonable alternative and such adjustments bring the means test result below the minimum payment thresholds. Debtors must provide information in their schedules showing whether means test presumption arises.
A new case is presumptively not in good faith as to all creditors if the debtor had been a debtor in more than one prior case in the preceding year; or a prior case was dismissed during that period for failure to file documents without substantial excuse, failure to provide adequate protection, or failure to perform the terms of a confirmed plan; or there has been no substantial change of circumstances since the last dismissal that would make the new case likely to be successfully concluded. A new case is also presumptively in bad faith as to any creditor that filed a motion for relief from the automatic stay that was pending at the time of dismissal or had been resolved by terminating, conditioning, or limiting the stay.
Exception to not filing Chapter 7 if obtained discharge under Chapter 7 or 13 within past eight years
There is an exception to the rule against filing a Chapter 7 if one has obtained a discharge of debts under Chapter 7 or Chapter 13 in a case begun within the past eight years. If a debtor obtained a Chapter 13 discharge in good faith after paying at least 70 percent of the debtor’s unsecured debts, the eight-year bar does not apply. The eight-year period runs from the date that the earlier bankruptcy was filed, not the date of discharge.