What Disqualifies You From Filing Bankruptcies Under Chapter 7 or 13

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Filing for bankruptcy can feel like a financial lifeline when you’re drowning in debt, but not everyone qualifies.

Understanding what might block your path to bankruptcy is crucial before you start the process, potentially saving you time, money and additional stress. 

Can Anyone File for Bankruptcy?

Bankruptcy is meant to help people who can’t pay their debts, but not everyone qualifies for every type of bankruptcy. There are regulations in place based on your income, past filings, and other actions that determine whether or not you’re eligible for bankruptcy now. 

There are two main types of bankruptcy: Chapter 7 and Chapter 13. We’ll discuss each in this post. 

Chapter 7 Bankruptcy Disqualifications

Chapter 7 bankruptcy is often called “liquidation bankruptcy,” and is typically the fastest solution. It will eliminate most unsecured debts (like medical bills or credit cards) within 3-4 months, and though non-exempt assets can be sold to pay creditors, most filers can protect most if not all their property through exemptions. It will impact your credit score for up to 10 years. 

The following may disqualify you from a Chapter 7 bankruptcy.

1. Failed the Means Test

The means test compares your income to the median income in your state for a household of your size. If your income exceeds this median, additional calculations determine if you have enough disposable income to repay some of your debts based on your expenses. But only some expenses are eligible for deduction; bankruptcy won’t support unnecessarily lavish lifestyles. 

If you fail the means test because your income is too high, you generally can’t file for Chapter 7 bankruptcy. Instead, you might qualify for Chapter 13, which requires a repayment plan.

The means test isn’t just about your current paycheck. It looks at your average monthly income over the previous six months, which could be affected by factors like holiday bonuses. 

2. Recent Bankruptcy Filing

You can’t continuously file for bankruptcy whenever you accumulate debt. Federal law requires that you wait eight years after receiving a Chapter 7 discharge before filing for Chapter 7 again. If you received a Chapter 13 discharge, you must wait six years before filing Chapter 7.

These waiting periods help prevent abuse of the bankruptcy system and ensure that it remains available for genuine financial emergencies.

3. Dishonesty or Lack of Cooperation

Bankruptcy courts take honesty very seriously. If you hide property, transfer assets to avoid seizure, lie about your income or debts, or fail to cooperate with the court, the judge can dismiss your case.

In severe cases of fraud, you might even face criminal charges.

4. Prior Dismissal

If a previous bankruptcy case was dismissed within the past 180 days due to your willful failure to appear before the court or comply with court orders, or if you voluntarily dismissed your case after creditors sought relief from the bankruptcy court to recover property, you cannot file for Chapter 7.

5. Failure to Complete Required Counseling

You must complete credit counseling from an approved agency within 180 days before filing for bankruptcy. After filing, you must also complete a debtor education course before receiving your discharge. Failing to meet either requirement can result in your case being dismissed.

Chapter 13 Bankruptcy Disqualifications

Chapter 13 bankruptcy creates a three to five year repayment plan to help you catch up on missed payments, but allows you to keep your property, making it an option for people who want to save their home from foreclosure or catch up on car payments. It remains on your credit report for up to seven years. 

You may be disqualified from a Chapter 13 bankruptcy for the following reasons. 

1. Excessive Debt

For cases filed between April 1, 2025, and March 31, 2028, your secured debts cannot exceed $1,580,125, and your unsecured debts cannot exceed $526,700 to qualify for Chapter 13 bankruptcy. 

If your debts exceed these limits, you might need to look into Chapter 11 bankruptcy instead, which is typically used by businesses but available to individuals with substantial debt.

2. Insufficient Regular Income

Chapter 13 requires you to have a steady, reliable income sufficient to cover your basic living expenses plus your repayment plan obligations. Without adequate income, the court won’t approve your Chapter 13 plan.

This doesn’t mean you need a traditional job; income can come from various sources, including social security, disability payments, rental income, or contributions from family members. What matters is that the income is reliable and sufficient to cover your living expenses and your repayment plan. 

3. Unfiled Tax Returns

You must be current on filing your tax returns for at least the last four years. The bankruptcy trustee needs to verify your income and financial situation, which requires recent tax documentation.

4. Recent Bankruptcy Filing

If you’ve received a Chapter 13 discharge within the past two years or a Chapter 7 discharge within the past four years, you may be ineligible for a new Chapter 13 discharge. However, you might still be able to file Chapter 13 to gain court protection while under a repayment plan, even if you won’t receive a discharge.

Mistakes That Can Get Your Case Thrown Out

Beyond the basic qualification requirements, certain actions during the bankruptcy process can result in your case being dismissed:

• Hiding or transferring property before filing: Attempting to give assets to friends or family to keep them out of bankruptcy is considered fraud. Trustees can look back several years at your financial transactions.
• Making large purchases on credit before filing: Running up credit card bills on luxury items shortly before filing suggests you never intended to repay the debt, which is fraud.
• Lying about income or debts on forms: All bankruptcy paperwork is signed under penalty of perjury. False statements can lead to case dismissal, denial of discharge, and even criminal charges.
• Not completing required credit counseling: You must complete pre-filing credit counseling within 180 days before filing and a financial management course after filing. Skip either one and your case will get dismissed.
• Missing paperwork deadlines: Bankruptcy requires extensive documentation. Failing to submit tax returns, pay stubs, or other requested documents on time can derail your case.
• Concealing property during proceedings: If the trustee discovers you’ve hidden assets during your bankruptcy, your case can be dismissed and you could face serious legal consequences.
• Missing the meeting of creditors: This mandatory hearing (also called the 341 meeting) requires your attendance. Miss it without a valid reason, and your case might be dismissed.

What to Do If You’re Disqualified

If you’re disqualified from bankruptcy, you can consider the following:

• Consult with a bankruptcy attorney: They can help prevent minor mistakes that could get your petition thrown out. They might also be able to identify strategies to help you overcome disqualifications or suggest different types of bankruptcy. 
• Work with a nonprofit credit counselor. These experts can help you design a debt management plan that distributes payments to creditors.
• Consider alternatives: Debt management plans, debt settlements, and credit counseling are all options to consider.  

Bankruptcy Alternatives to Consider

These are the most common bankruptcy alternatives to consider:

• Debt Management Plan (DMP): A structured repayment program typically set up through a credit counseling agency. You’ll make one monthly payment to the agency, which distributes funds to your creditors, often with reduced interest rates and waived fees. It usually takes 3-5 years to complete.
• Debt Settlement: A strategy where you (or a company you hire) negotiate with creditors to accept less than the full amount owed. 
• Credit Counseling: A service provided by nonprofit organizations that helps you understand and manage your debts through financial assessment, budget planning, and education on money management. Counselors can advise on various debt relief options and whether bankruptcy is appropriate.

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