What disqualifies you from filing for bankruptcy?

While filing for bankruptcy tin assistance you get escaped of your costly debt, not everyone qualifies for this benignant of relief. Getty Images

Hundreds of thousands of Americans file for bankruptcy each twelvemonth to question alleviation from their overwhelming fiscal burdens, whether they're dealing with high-rate recognition paper debt, aesculapian bills, unsustainable idiosyncratic oregon pupil indebtedness payments oregon thing other entirely. Bankruptcy filings person besides been expanding recently, with caller information showing an uptick successful filings of 16.2% from 2023 to 2024, which was apt due, astatine slightest successful part, to the fiscal pressures caused by today's higher user goods costs and the elevated complaint environment. 

But portion bankruptcy tin beryllium a lifeline for many, the bankruptcy process is governed by strict eligibility criteria, which limits who tin record for this benignant of protection. As a result, it's not uncommon for bankruptcy filings to beryllium initially rejected, and galore of these cases impact disqualifying factors that could person been identified beforehand, redeeming the filers the expenses and the headaches that tin travel with being rejected. Recent changes to the ineligible model person besides added layers of complexity to the bankruptcy process.

So, if you're reasoning astir filing for bankruptcy, it's important to recognize what could disqualify you from doing truthful — arsenic good arsenic the suitable alternatives. This way, you tin determine which way makes the astir consciousness for your unsocial situation.

Find retired much astir your indebtedness alleviation options now.

What disqualifies you from filing for bankruptcy?

The 2 astir communal types of personal bankruptcy are Chapter 7 and Chapter 13, and each has chiseled eligibility requirements and disqualifiers. Here are immoderate of the factors that tin disqualify you from filing for either type:

Failing the means test

For Chapter 7 bankruptcy, applicants indispensable walk a means trial to beryllium they deficiency capable disposable income to repay their debts. The means trial compares your mean monthly income implicit the past six months to the median income for a household of your size successful your state. If your income exceeds the threshold, you whitethorn not suffice for Chapter 7 and mightiness request to see Chapter 13 instead.

Learn however the close indebtedness alleviation solution could assistance you now.

Recent bankruptcy discharges

The timing of your past bankruptcy straight impacts eligibility. For Chapter 7, you indispensable hold 8 years from a erstwhile Chapter 7 discharge oregon six years from a Chapter 13 discharge. For Chapter 13, the waiting play is 2 years aft a erstwhile Chapter 13 discharge oregon 4 years pursuing a Chapter 7 discharge.

Failure to implicit mandatory recognition counseling

Federal instrumentality requires the completion of a recognition counseling people from an approved supplier wrong 180 days earlier a bankruptcy filing. Skipping this request automatically disqualifies your application.

Fraudulent behavior

Bankruptcy courts are vigilant astir ensuring the process is not abused. As a result, concealing assets, making fraudulent transfers wrong 1 twelvemonth of filing, destroying fiscal records oregon lying connected bankruptcy forms volition typically disqualify your lawsuit and could perchance effect successful transgression charges. 

Recent luxury purchases

Making large recognition paper charges for luxury items exceeding $725 wrong 90 days of filing, oregon currency advances exceeding $1,000 wrong 70 days of filing, are besides presumed fraudulent and tin disqualify your case.

Excessive income (for Chapter 13)

Chapter 13 bankruptcy requires debtors to person a regular income and adhere to repayment plans. However, if your income is excessively precocious comparative to your debts, the tribunal whitethorn find that you're not eligible to restructure your debts nether this chapter.

What options bash I person if I'm disqualified for bankruptcy?

If you don't suffice for bankruptcy, determination are alternate strategies that tin assistance you negociate oregon trim your debt, including:

• Debt consolidation: Debt consolidation involves combining aggregate debts into a azygous indebtedness with a little involvement complaint oregon much manageable outgo terms. This tin simplify payments and trim wide costs.
• Debt settlement: In a indebtedness colony (also referred to arsenic debt forgiveness), you negociate with creditors to wage a lump sum that's little than the full magnitude owed. While this tin wounded your recognition score, it whitethorn supply a quicker way to resolving outstanding debts and whitethorn little your full equilibrium by up to 50% connected average.
• Debt management: When you enroll successful a indebtedness absorption program, you enactment with a recognition counseling bureau to consolidate payments and perchance trim involvement rates. These plans typically past betwixt 3 and 5 years.
• Asset liquidation: You besides person the enactment to merchantability invaluable assets to pay down your debt. While this whitethorn necessitate immoderate sacrifices, it avoids bankruptcy's semipermanent recognition implications and ineligible restrictions.

The bottommost line

While bankruptcy tin supply a caller commencement to those who are facing superior fiscal hardship, it's important to recognize that this benignant of alleviation is not disposable to everyone — and it comes with strict qualifying criteria designed to forestall maltreatment of the system. So, anterior to filing, beryllium definite to thoroughly reappraisal your eligibility, see alternatives and consult with a bankruptcy lawyer to measure your circumstantial situation. If you're disqualified, absorption connected alternate indebtedness alleviation strategies that mightiness amended suit your circumstances instead.

Edited by Matt Richardson