Who Is Declined for Bankruptcy?

By Heather Frances J.D.

A successful bankruptcy case discharges a debtor’s remaining debts after certain legal requirements are met. However, not every debtor qualifies for bankruptcy protection, and each type of bankruptcy has specific requirements. Even when a debtor qualifies for bankruptcy, his case can be dismissed if he doesn’t comply with the court’s requirements or if he covers up facts about his case.

A successful bankruptcy case discharges a debtor’s remaining debts after certain legal requirements are met. However, not every debtor qualifies for bankruptcy protection, and each type of bankruptcy has specific requirements. Even when a debtor qualifies for bankruptcy, his case can be dismissed if he doesn’t comply with the court’s requirements or if he covers up facts about his case.

Chapter 7 Means Test

You must meet certain income guidelines to qualify for filing Chapter 7 bankruptcy. If you make less than the median income for your state, you typically qualify. If you make more, the bankruptcy court will apply a “means test” to determine if you are eligible to file. The court calculates your total projected disposable income over the next five years, using your current monthly income. If your projected disposable income -- current monthly income minus certain allowable living expenses, multiplied by 60 months -- is more than $11,725, you won’t pass the means test. Likewise, if the figure is at least $7,025 and this amount represents more than 25 percent of your unsecured debt, you won't pass. In these cases, the court will presume your filing is "abusive," which means your case will typically be dismissed -- and you won't receive a discharge -- or it will be converted to a Chapter 13 case.

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Bankruptcy Fraud

If the court discovers fraud in your case, your case may be dismissed and you may face other fines and criminal charges. Concealing assets from the court to avoid forfeiture or intentionally filing false forms is usually considered fraud. Most bankruptcy fraud involves debtors who conceal assets, sometimes by transferring assets to friends or relatives. Filing multiple cases in several states or using false information to file is also considered fraud.

Credit Counseling

Bankruptcy requires the debtor to attend credit counseling and financial management courses. Chapter 13 bankruptcy requires the debtor to attend credit counseling from an approved agency before even filing his case, except in emergency situations or when such agencies are unavailable. If the debtor doesn’t attend these required sessions, the case will be dismissed because the debtor has not complied with the necessary steps to receive a discharge at the end of the case.

Improper Filing

Bankruptcy cases require many forms to be filed with the court, and the court may request additional information. You must comply with filing deadlines and provide complete information to the court. If you don't, the court could dismiss your case.

Chapter 13 Payments

Chapter 13 bankruptcy requires the debtor to make payments in accordance with a three- to five-year payment plan. If you fail to make these required payments or aren’t able to afford the payments as planned, your case could be dismissed. Alternatively, the court could grant your request for a hardship discharge if your failure to make payments was caused by circumstances beyond your control, such as a job loss or serious illness. To qualify for a hardship discharge, you must have paid your creditors at least as much as they would have received under Chapter 7; it must also be the case that modification of your payment plan won’t fix the delinquency.

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Who May File for Chaper 7 Bankruptcy?

References

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Michigan Bankruptcy and Hardship Discharge Laws

Bankruptcy is governed by federal law, so bankruptcy is filed in federal court rather than in Michigan state courts. Federal law determines whether your case qualifies for a hardship discharge. However, even in federal court, some bankruptcy guidelines – such as exemption lists and income standards – are specific to Michigan residents.

Will I Lose My Car if My Chapter 13 Is Dismissed?

Vehicles are one type of asset the court can address during Chapter 13 bankruptcy, but a dismissal won’t necessarily affect your ownership of a vehicle that has been paid off. Since the only creditor who can repossess your vehicle is the one who holds the loan on it, none of your other creditors can take your car. However, if your case is dismissed, you may have to sell some of your assets, including your car, to raise the cash to pay your remaining debts.

Difference Between Bankruptcy Closing & Dismissal

When your bankruptcy case comes to an end, it is said to have closed, but how it closes could have a significant impact on your liability for your debts. For example, if the court discharges your bankruptcy, you are no longer liable for your debts. If your bankruptcy is dismissed, however, you are still on the hook for payment. Even worse, the automatic stay that prevents creditors from coming after you during the bankruptcy process can be shortened or eliminated altogether if you file for bankruptcy again in the future.

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