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What happens if you are not eligible for chapter 7 bankruptcy?

On Behalf of | Jun 7, 2024 | Bankruptcy Law

When debt collectors come knocking at your door and loan payments start stacking up, it is inevitable to feel overwhelmed. Though you might think there is not a way to recover your financial situation, you do have options.

Chapter 7 bankruptcy is regarded as one option to seek relief from debt, as it could see eligible debts discharged. However, what if you are not eligible for this option?

Income affects eligibility

One of the qualifiers for chapter 7 bankruptcy is passing the means test, or having an annual household income below the state median. In Maryland, adjustment of the median takes place every six months. Figures provided by the Department of Justice show that the median currently sits at these amounts as of May 30, 2024:

  • Single-Person household: $81,293
  • Two-person household: $104,569
  • Three-person household: $127,386
  • Four-person household: $151,138

To determine your eligibility, first calculate your total annual income. This could include your salary, as well as any other sources of income, such as alimony payments or earnings from a side hustle. Next, you can deduct expenses such as your mortgage, car payments, overdue taxes, insurance premiums or childcare costs.

If your income is still above the median, you may not be eligible to file chapter 7 bankruptcy. However, you do should not lose hope.

Chapter 13 bankruptcy could still be an option

One alternative to chapter 7 is filing chapter 13 bankruptcy. Where chapter 7 manages debt through liquidation, chapter 13 allows you to create a repayment plan to make paying off your debts more manageable.

One benefit to this plan is that a bankruptcy trustee will not have to sell off your non-exempt assets to pay off creditors. This could protect your home from foreclosure and leave your property intact. Your debts may also be frozen, so they no longer accumulate interest.

Even if you are not eligible for chapter 7 bankruptcy, you have other options to seek relief. You do not have to let temporary setbacks get in the way of improving your financial situation in a meaningful way.