Federal bankruptcy is the only kind of bankruptcy there is, and it involves surprisingly few requirements considering the relief it can offer consumers. This isn't to say that every individual can qualify for every chapter, but overall, the bankruptcy code offers many debtors a fresh start.
The Means Test
The bankruptcy means test determines if you're eligible to file for Chapter 7 or if you must file for Chapter 13. Not all debtors have to take the test, however. If your income is less than the median income in your state for a family of your size, you automatically qualify for Chapter 7. Additionally, some disabled veterans and military reservists are exempt. If you do have to take the test, your income is the monthly average you earned over the six months immediately before filing. You may then subtract necessary living expenses to determine how much money you have left over each month with which you could potentially pay down your debts. The deductions may not be what you actually spend on things like your mortgage or groceries – you're limited to what the Internal Revenue Service says you should spend based on the cost of living in your particular area.
Wage Earner's Bankruptcy
If you earn more than your state's median income and you must take the means test, whether you qualify for Chapter 7 or Chapter 13 depends on exactly how much income you have left over each month after subtracting the allowed expenses. If you have less than $100, you're eligible for Chapter 7. If you have between $100 and $166 left over, the decision is left to the court. If you have $166 or more, you must file for Chapter 13. To be eligible for Chapter 13, however, you must have at least one source of regular income so you can commit to a plan to pay your debts back over three to five years. Chapter 13 is often referred to as a wage earner's bankruptcy for this reason.
If you find that you don't qualify for Chapter 7 and must file for Chapter 13 instead, the bankruptcy code imposes a limit on the amount you owe. As of January 2014, your unsecured debt cannot exceed $360,475, and your secured debt cannot top $1,081,400. These numbers are adjusted periodically to keep pace with the consumer price index, so check with an attorney before you file if you're nearing either of these thresholds. There are no limits to how much debt you can have if you file for Chapter 7.
Limits on Refiling
You may be disqualified from filing for bankruptcy – at least immediately – if you've done so before. If you received a Chapter 7 discharge, you must wait eight years before you're eligible to file for Chapter 7 again, and only four years if you want to file for Chapter 13 instead. If you received a Chapter 13 discharge, you must wait at least four years to file for Chapter 7, and possibly six years depending on whether your plan paid off most or all of your unsecured debt. You need only wait two years to file for Chapter 13 again. If you did not receive a discharge because either you or the court dismissed your previous bankruptcy, you may be able to file again immediately, depending on the reason for the dismissal. Your automatic stay may be shortened, however – the rule that keeps creditors from pursuing you for payment while you’re in bankruptcy. You may be prohibited from refiling for a period of time if your case was dismissed for misconduct on your part.
The bankruptcy court wants to make sure that you know how to best manage your credit, debts and finances after you're granted a discharge. Federal law requires that qualifying debtors attend court-approved credit counseling within six months of filing.