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What If You Don't Meet the Guidelines for Bankruptcy?

25 January 2021 by Kenneth Pierce

One of the fastest ways to file for bankruptcy is to show the court that you meet certain eligibility requirements. However, a lack of eligibility doesn't presuppose that you still can't file. Instead, it sends you on a somewhat different path. Let's look at what happens if a petitioner doesn't meet the eligibility guidelines for bankruptcy.

Recheck the Eligibility Numbers

Given that meeting the eligibility requirements puts you on an automatic path to file, especially within the Chapter 7 liquidation process, a bankruptcy lawyer will want to check your numbers again. The basic eligibility means test for Chapter 7 is half of your state's median income. If you're below that threshold, you'll likely have very little trouble getting a court to grant relief.

Folks above that threshold will have to put in more effort. However, they can still petition for Chapter 7 relief. The court will simply ask for evidence of income and outstanding debts to determine if the judge might discharge your debts.

If you don't, you may still be able to file for restructuring. The Chapter 13 and 11 restructuring processes don't have hard guidelines for automatic eligibility like Chapter 7 does. That means someone who just wants to restructure their debts will have to present evidence of their income and liabilities. Likewise, they'll have to submit a plan telling the court how they'd repay a percentage of their debts within three to five years.

Documentation

You may have noticed that there's a lot of discussion here of proving what your income is and how much you owe to your creditors. Documentation is a big part of filing, and it's wise to hire a bankruptcy attorney to help you keep all of the paperwork straight.

What sort of documentation will you need to present? Foremost, you should make copies of at least your last two years' worth of tax forms. Also, it's a good idea to have several of your most recent pay stubs, especially if you plan to file based on a recent and major drop in income.

You'll need to have a detailed list of all of the names, addresses, and contacts for your creditors. This is critical because failing to include these items means those creditors won't be included in your case. If the court grants relief, unnamed creditors can still collect, defeating the purpose of bankruptcy.

Hearing

The court system will appoint a judge to review your petition. The judge will schedule a hearing where they will review your eligibility and determine if the case should proceed.

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