What Can Disqualify You from Filing for Bankruptcy?

Filing for bankruptcy can be a way to regain financial stability when debt becomes overwhelming.

However, not everyone qualifies for bankruptcy; some circumstances can disqualify a person from filing or receiving one. It’s important to understand the things that can keep you from getting a successful bankruptcy filing so you can prepare and explore other options if you need to.

Failing the Means Test for Chapter 7

For those seeking to file Chapter 7 bankruptcy, the means test is a critical component.

This test determines whether you have enough disposable income to repay your debts rather than eliminating them through liquidation. If your income is higher than the state median for your household size and you fail, you don’t pass the means test and may not be eligible for Chapter 7.

If that’s the case, Chapter 13 bankruptcy, which involves a repayment plan, may be your only option.

Having a Previous Bankruptcy Discharge

Bankruptcy law restricts how frequently a person can file for and receive a discharge.

You must wait before filing again if you’ve already received a bankruptcy discharge. For Chapter 7 bankruptcy, you’ll need to wait eight years after any previous Chapter 7 discharge or six years from a Chapter 13 discharge.

For Chapter 13 bankruptcy, the wait time is four years after a Chapter 7 discharge or two years after a prior Chapter 13 case.

Filing too soon after a previous bankruptcy can result in the dismissal of your filing or failure to discharge your debts.

Engaging in Fraudulent Activity

Bankruptcy courts take fraud activity very seriously. If you’re found to have engaged in fraudulent activities, your case may be dismissed, and you could even face criminal charges.

Examples of fraud include:

• Concealing your assets
• Falsifying income information
• Charging up credit cards before filing
• Transferring your property to others to avoid losing it.

The court will review your financial records and transactions closely, and if they suspect, your case may be denied.

Failure to Complete Required Courses

Before filing for bankruptcy, you’ll have to finish a credit counseling class from an approved agency.

This requirement is to make sure that you understand your financial situation and that you’ve explored alternatives to bankruptcy. Also, once you’ve filed, you’ll need to complete a debtor education course before your debts are discharged.

Failure to complete either course can result in dismissal of the case or delays in receiving a discharge.

Dismissal of a Previous Bankruptcy Case

If you’ve had a previous bankruptcy case dismissed, particularly due to failure to comply with court orders, failure to make required payments, or a voluntary dismissal after a creditor sought relief from the automatic stay, there may be restrictions on filing again.

In some cases, you must wait six months (180 days) before you can file another case. Repeated dismissals can be a red flag to courts that you may be abusing the bankruptcy system.

Having Too Much Disposable Income for Chapter 13

While Chapter 13 bankruptcy is another option if you don’t qualify for Chapter 7, there are income limitations that could prevent you from filing.

The court may deny the case if your disposable income is too high, and you can afford to pay off a significant portion of your debts. In such situations, creditors may argue that bankruptcy isn’t necessary, and you should negotiate payments directly with them instead.

Failing to File Necessary Paperwork

Declaring bankruptcy requires a great deal of paperwork, including income statements, tax returns, a list of debts, and asset disclosures. If you don’t provide the necessary paperwork, the court may dismiss your case.

Accuracy is also crucial—if your information is incomplete or misleading, it could result in case denial or allegations of fraud. Working with a qualified bankruptcy attorney can help ensure that all required documentation is submitted correctly.

Court Determination of Bad Faith Filing

Bankruptcy courts can dismiss cases filed in bad faith.

Bad faith filings are when someone appears to be trying to abuse the process, like repeatedly filing to delay creditor actions, failing to disclose financial information, or intentionally running up debt before filing.

If a court determines that you’re not acting in good faith, it may deny your case and restrict future filings.

Ineligible Types of Debt

Not all types of debt can be discharged in bankruptcy. If the bulk of your financial burden comes from debts that aren’t eligible for discharge, filing for bankruptcy may not be helpful.

Common non-dischargeable debts include:

• Child support
• Alimony
• Most student loans
• Some types of tax debt
• Any court-required restitution payments

If your financial difficulties are primarily due to these types of debt, bankruptcy may not be your best option.

Understanding Your Options

While bankruptcy offers relief for many people who struggle with unpayable debt, it’s not the best option in every situation.

You may need to explore alternatives if you find yourself ineligible for bankruptcy based on your income level, previous filings, or other disqualifying factors. Debt negotiation, credit counseling, or dealing with your creditors directly can often be viable solutions as well.

If you’re considering bankruptcy, consulting with an attorney at Belsky & Horowitz, LLC, can help you clarify your eligibility and prevent costly mistakes.

Understanding potential disqualifications in advance can lead to better financial decisions and a clearer path toward resolving your debt.