To some people who are drowning in debt with no clear solution in sight, Chapter 7 bankruptcy sounds almost too good to be true: in as little as 4-5 months, a Chapter 7 case can wipe out most types of unsecured debt. There’s no limit on the amount of unsecured debt that can be discharged, and the bankruptcy petitioner usually doesn’t even have to show up in court.
Chapter 7 bankruptcy can provide significant, quick relief to people with unmanageable levels of unsecured debt. But, they’re not the only ones who benefit. The U.S. Bankruptcy Code exists not only to help people who have become overwhelmed by debt get back on their feet, but also to allow those people to contribute more meaningfully to the local and national economies. After all, people struggling to keep up with minimum payments aren’t likely to frequent local restaurants, purchase consumer goods, or take entrepreneurial risks. The Chapter 7 “clean slate” can change all that.
But, that doesn’t mean anyone can wipe out debt in Chapter 7. Here’s what you need to know about Chapter 7 eligibility.
Las Vegas Chapter 7 Bankruptcy Filings
In 2018, there were 7,341 Chapter 7 bankruptcy cases filed in Nevada. More than 84% of those cases were filed in the unofficial Southern District, also known as the “Las Vegas District.”
While most Chapter 7 eligibility standards are the same for anyone considering filing, the first step in determining income qualification depends on geography. While the Chapter 7 Statement of Current Monthly Income is a standard form, the step that determines whether or not you must go on and complete the Means Test involves comparing that income to the median for a household of your size in your state. If your household income is equal to or less than the median, you need not go on to the next step.
In Nevada, the current medians are:
- Single Earner: $51,516
- 2-Person Household: $64,586
- 3-Person Household: $73,524
- 4-Person Household: $80,077
For larger households, $9,000 is added for each household member after the fourth.
The Chapter 7 Means Test
If your household income is above the state median for your family size, that doesn’t mean you’re disqualified from filing Chapter 7. It just means that you have to go on to the next step, where more complicated calculations kick in.
The Means Test calculation involves adding up all of your allowable monthly expenses and deductions. But, most of these amounts won’t come from your actual budget. Instead, you’ll use IRS standards–some national and some local–for each expense category. The calculations will also vary based on factors like whether you have a non-filing spouse who shares household expenses and whether any member of your household is aged 65 or older.
You’ll subtract expenses and allowable deductions from your monthly income. What’s left over is your disposable income. If your disposable income over a five-year period adds up to more than $13,650, that raises a presumption of abuse. You likely will not be able to file for Chapter 7 bankruptcy, though there are some exceptions.
If the total is less than $8,175, there is no presumption of abuse, and you will likely be eligible for Chapter 7 bankruptcy.
If your disposable income falls between those two numbers, another calculation is required–this one to determine whether you have enough disposable income to pay at least 25% of your unsecured, non-priority debt over a five-year period. If you do, then the presumption of abuse arises, and you may want to consider Chapter 13 bankruptcy.
This calculation can be tricky. The Means Test form is nine pages long, and requires extensive information about your income, debts, and expenses. It may be difficult to determine what expenses are allowed, how much contribution is allocated to a non-filing spouse, and even which of your debts must be included in the calculation. An experienced Las Vegas bankruptcy attorney can help you determine whether Chapter 7 bankruptcy is likely to be an option for you and provide information to help you decide whether bankruptcy is the right solution for you.
Special Circumstances and Exemptions
There are two circumstances under which the calculations described above do not necessarily determine whether or not you are eligible for Chapter 7 bankruptcy. The first is when you are exempt from the presumption of abuse. This occurs in one of two ways:
- Your debts are primarily non-consumer debts, such as business loans, or
- You are a disabled veteran who incurred most of the debts while on active duty, or a Reservist or member of the National Guard who meets certain other criteria
If you are exempt from the presumption of abuse for one of these reasons, you get to skip the Means Test calculation.
You may also be able to proceed with a Chapter 7 case if you have special circumstances that will allow you to overcome the presumption of abuse. In this situation, you will be asked to explain those circumstances on the Means Test form, and will bear the burden of proving to the judge that you are not abusing the bankruptcy process.
Most People Who Want to File for Chapter 7 Bankruptcy Can
The Means Test calculation may be complex and confusing, and terms like “presumption of abuse” can be intimidating. But, the good news is that most people who are seriously considering Chapter 7 bankruptcy in Las Vegas are eligible.
To learn more about whether Chapter 7 may be the solution you’ve been looking for, schedule a free consultation with one of our experienced bankruptcy attorneys. Call 702-903-1459 or fill out the contact form on this site to get started.