Residence and Median Income Levels

• The state in which you reside can have a dramatic effect on your Chapter 7 bankruptcy. In order to qualify for Chapter 7, your average annual income must fall below the median income in your state for a household of your size. If you live in a high-income state, you are more likely to qualify for Chapter 7 than if you live in a low-income state. For example, the median income for a family of two in California is $61,954, while in Louisiana it is only $45,950. If you earn $50,000 annually in Louisiana, you would not therefore qualify to file Chapter 7, while you would if you lived in California (see Resource 2).
  
  

Monthly Disposable Income

• Whether or not you pass the median income test, you still may find yourself ineligible for Chapter 7 bankruptcy. If your monthly disposable income, or the amount you have left every month after you take out reasonable expenses, is too high, the U.S. Trustee will seek to either dismiss your case or push you into a Chapter 13 bankruptcy. A Chapter 13 bankruptcy requires you to pay back a certain amount to your creditors and the payment plan lasts three to five years. To qualify for a Chapter 7 bankruptcy, you must have a 60-month disposable income of less than $7,025 (see Resources 2 and 3).
  
  

Assets and Exemptions

• In a Chapter 7 bankruptcy, you must turn over to the bankruptcy trustee any assets you have that are deemed too valuable by the state for you to keep. Each state publishes its own level of exemptions and they can be dramatically different. For example, while most states will restrict the value of a home you may keep in a Chapter 7 bankruptcy, Texas and Florida allow you to keep your home irregardless of value (see Resource 4).
  
  

Objections

• One of the mandatory requirements of a Chapter 7 bankruptcy is that you attend a Section 341 meeting, also called the meeting of creditors. Both the bankruptcy trustee and any of your creditors may ask you questions about your case at the meeting and can lodge objections to your case, typically for claims about fraudulent charges or transfers. Any objections can extend your case or even result in its dismissal.