Filing for bankruptcy is not for everyone. The mandatory credit and bankruptcy counseling courses act as barricades to deter many from filing for this type of government financial assistance. Likewise, the requirements to declare bankruptcy may force some to find alternative solutions. 

Qualifying for bankruptcy help depends on your income, debt, location, and other factors. You may be able to file for one type, but not another. If your income is too high, for instance, the government may assume you can repay your debt without any bankruptcy assistance.

A means test helps determine if your disposable income is high enough to pay back creditors and helps you understand what type of bankruptcy (if any) you can file. 

Passing the means test means that your income is low enough for you to qualify for Chapter 7. Failing the means test means that the government can limit you to Chapter 13 bankruptcy because your income is too high.

Requirements for Chapter 7 Bankruptcy 

Chapter 7 bankruptcy – or liquidation bankruptcy – requires you to have lower-than-average earnings. The income requirement considers the number of family members in your household and the median income for the area. For at least six months, your income must be less than your area’s median income for similar-sized households.

Other criteria for Chapter 7 bankruptcy typically include the following:

• Not filing for Chapter 7 bankruptcy within the previous eight years.
• Not filing for Chapter 13 bankruptcy within the last six years
• Waiting 181 days if the court dismissed a previous filing attempted

Even if you meet the income requirement, the court may dismiss your case if it suspects fraud. For instance, the court may inspect your credit card purchases if it has reason to believe you ran up your credit card with the intention of declaring bankruptcy. 

Requirements for Chapter 13 Bankruptcy

To file for bankruptcy under Chapter 13, you typically need to earn enough money to follow the repayment plan within the set schedule. If your income qualifies for you Chapter 13, the repayment term is five years. 

Additional Chapter 13 bankruptcy include the following:

• Completing an approved credit counseling course within 180 days of filing
• Having less than  $419,275* in unsecured debt 
• Having less than $1,257,850* in secured debt 
• Waiting at least 180 days to refile a previous bankruptcy 

* Amounts are subject to change. Figures are based on the consumer price index. 

These criteria are put in place to help offset the long-term effects of bankruptcy. Check out what you can expect after you file for either type of bankruptcy.