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What are the eligibility criteria for Chapter 7 bankruptcy?

When debt becomes too heavy a burden, many Texas residents seek relief by liquidating assets. Bankruptcy with asset liquidation in order to repay creditors is known as Chapter 7 bankruptcy. To file for Chapter 7 bankruptcy, certain criteria must be fulfilled.

First and foremost, Chapter 7 bankruptcy requires that a debtor must an individual, a partnership or a business entity. Next, that individual or business entity is subjected to a means test which is an important determinant for bankruptcy filings. Upon qualification, that individual or business entity is eligible to file for bankruptcy under Chapter 7. The amount that the debtor owes or solvency is irrelevant once the means test has been cleared.

However, if a previous bankruptcy petition by the debtor was dismissed in the past 180 days, the debtor is not eligible for a bankruptcy filing under Chapter 7 or any other chapter of the U.S. Bankruptcy Code. The petition could have been dismissed because of the debtor's absence at a bankruptcy court hearing or for failure to comply with court orders. The petition could also have been dismissed because the debtor voluntarily withdrew the petition after creditors sought relief from the bankruptcy court for recovering assets for which they hold liens.

It is also important to remember that counseling from an authorized credit counseling agency is mandatory for filing Chapter 7 bankruptcy. During counseling, preparation of a debt management plan is done, which is later submitted to the bankruptcy court. That counseling must have taken place within the last 180 days preceding the bankruptcy filing and can be completed either as an individual or in a group. There are exceptions to this rule in case of an emergency or where a trustee is convinced that there is a lack of authorized agencies to provide counseling.

Source: USCourts.gov, "Liquidation Under the Bankruptcy Code," Accessed on Sept. 17, 2014

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