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Who is eligible to file for Chapter 7 bankruptcy protection?

When considering filing for bankruptcy, many in Washington may feel overwhelmed with the various types that are available. While most have heard of businesses and individuals filing for Chapters 11 and 13 bankruptcy protection, Chapter 7 may be the best option for some debtors, providing they meet the qualification requirements. A recent article discusses some of the reasons why a person may be ineligible to seek this type of bankruptcy.

Prior to 2005, bankruptcy judges were generally able to determine who qualified for Chapter 7 protection. A law was then passed to determine eligibility, which is largely based on the income level of the debtor and the debtor's ability to repay some of the debt that he or she owes to creditors. The person's income level is compared to the state's median income, and the calculation includes many factors, such as wages, commissions and tips, money obtained from investments, unemployment benefits or worker's compensation, state disability insurance, and child or spousal support, among others.

Other important aspects include whether a filer has been provided debt relief under Chapter 7 or Chapter 13 bankruptcy within the past eight or six years, respectively. The court also takes into account whether a debtor had a previous Chapter 7 or 13 case dismissed during the past 180 days due to the violation of a court order or presenting a fraudulent case. A bankruptcy court will also discharge a case if it appears that a debtor has attempted to deceive his or her creditors. This could happen if a debtor damages or destroys property, transfers property to family members or friends, purchases luxury items, or is dishonest about his or her income or debt level on an application for credit.

Even if it appears that Chapter 7 is not a viable option, there are still many other forms of debt relief that can assist in stabilizing one's financial situation. Many in Washington facing overwhelming debt contact attorneys who are experienced in bankruptcy law and litigation for assistance. An attorney will be able to evaluate his or her clients' financial positions and discuss the best legal options to seek debt relief.

Source: FindLaw, "Who Can File for Chapter 7 Bankruptcy?", Accessed on Oct. 26, 2016

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