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What are the eligibility requirements for Chapter 7 bankruptcy?

Some consumers in Ohio may benefit from submitting a petition for bankruptcy protections if they are unable to keep up with debt obligations and are seeking relief. In many cases, Chapter 7 bankruptcy is able to help a consumer discharge their debts, allowing them to rebuild their financial foundation without worrying about outstanding accounts. However, there are some rules that limit who can be granted the action.

While the protections can be granted to a number of different entities including individuals, corporations and partnerships, the applicants must pass a means test. This test is applied if the debtor's monthly income at the time of filing to the median monthly income of the state where petition is filed, and it is used to keep parties from abusing the bankruptcy system. The test assumes that abuse occurs if the filers' monthly income aggregated over five years is more than $12,475 or is more than 25 percent of the debtor's unsecured debt. If the filer is unable to show acceptable cause for failing the test, the action is changed to a Chapter 13 filing.

In addition to the test, a person who is filing for Chapter 7 bankruptcy must also participate in an approved credit-counseling program. The program must be completed within 180 days before the action is filed, but there are some circumstances where the counseling requirement might be waived.

While this post may provide a general outline of the eligibility requirements for seeking Chapter 7 protections, it should not be taken as legal advice. A person who is considering bankruptcy as a debt relief option might consider discussing his or her case with an attorney. That attorney could provide detailed information about how to file and how the action might affect a client's finances in the future.

Source:, "Liquidation Under the Bankruptcy Code", Federal Bankruptcy Court - Ohio, September 24, 2014

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