Select your state


Chapter 7 bankruptcy—eligibility

To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. Subject to the means test for individual debtors, relief is available under chapter 7 regardless of the amount of the debtor's debts or whether the debtor is solvent or insolvent.

But an individual cannot file under chapter 7 or any other chapter if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.

In addition, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing.

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a fresh start. The debtor has no liability for discharged debts. But in a chapter 7 case, a discharge is only available to individual debtors, not to partnerships or corporations.

Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. And a bankruptcy discharge does not extinguish a lien on property.

In Texas, as in all states, Chapter 7 of the Bankruptcy Code allows individuals, partnerships, and business entities to seek relief from debts. Individuals must pass a means test to qualify, which assesses their income and expenses against the median income for the state. A Chapter 7 bankruptcy can be filed regardless of the amount of debt or solvency status. However, individuals who have had a bankruptcy petition dismissed in the previous 180 days due to willful failure to comply with court orders, or who voluntarily dismissed a case after creditors attempted to recover secured property, are ineligible to file. Additionally, individuals must receive credit counseling from an approved agency within 180 days before filing. While Chapter 7 typically results in the discharge of debts, giving the debtor a 'fresh start,' the discharge is not guaranteed and does not apply to certain types of debts. Furthermore, a discharge does not remove liens on property. Partnerships and corporations cannot receive a discharge of debts under Chapter 7; this relief is only available to individual debtors.

Legal articles related to this topic