Bankruptcy is not an application process and is purely objective, meaning you do not need to have a minimum threshold of debt or a “valid” reason to file.
However, there are some reasons why you may not be able to file for a specific chapter. For example, you may not pass the means test to qualify for a Chapter 7 bankruptcy; however, Chapter 13 bankruptcy would still be an option.
Other reasons why your bankruptcy case may be dismissed mostly include a lack of cooperation, such as failing to appear in court, not providing requested documents, or falling behind on monthly Chapter 13 payments.
Here, we examine the most common reasons why debtors are disqualified from filing for and benefitting from bankruptcy.
The good news is that the vast majority of bankruptcy cases succeed as long as you avoid falling into a few common problem areas. Even better, you can reduce the chances of encountering these problems with the help of an experienced Arizona bankruptcy lawyer, like one you can find at Stone Rose Law.
What follows are the kinds of bankruptcy disqualifications seen by bankruptcy courts.
One of the simplest ways that bankruptcy filers can find themselves ineligible to file for bankruptcy is by making mistakes in the filing process.
Most cases require the completion of at least fifteen (15) different bankruptcy forms. Failing to complete these forms correctly and submitting them before the set deadlines result in the dismissal of your case. Attachments are required with some forms and then supporting documents must be sent to your Trustee at least fourteen (14) days prior to your 341 meeting.
Another problem that can happen during the filing process is not paying your required fees to the bankruptcy court clerk at the time of filing, although in some cases these fees may be waived if you cannot afford them.
If you have already made use of the bankruptcy process before, then you must meet an applicable waiting period before you can file for bankruptcy again. The waiting period depends on the type of bankruptcy you used in the past and the type of petition you want to currently file.
Chapter 7 bankruptcy uses a means test to show that you do not have enough income to pay your debts. Whether you need to take the means test depends on the annually determined U.S. census-based median income in the state you live in.
In Arizona, for Chapter 7 petitions filed after November 1, 2024, the median annual income is:
The bankruptcy court will consider your average monthly gross income for the six months before you file your Chapter 7 petition. Your annual income is calculated based on the monthly average from the last six months. A simple calculation is to take the total gross income received in the last six months and multiply by two for the total annual. This calculation is more complex with self-employment and other sources of income. It is recommended to consult with an experienced bankruptcy attorney to determine whether you meet the income requirement for a Chapter 7 filing.
If your monthly gross income during this period is below the median income level, then you do not need to pass the means test.
If your monthly income is above the state median, then you must take the means test using Bankruptcy Form 122-A. This form takes into account your current monthly income, assets, and expenses to calculate whether you have enough money to pay your creditors.
If you do not pass the means test, then you will be ineligible to use Chapter 7 but you may still be eligible to file for Chapter 13 bankruptcy.
Once you file for Chapter 7 bankruptcy, you have 180 days to pay for and complete a credit counseling course with an approved credit counseling agency and file a certificate of completion with the bankruptcy court.
Also, once the court has considered your case, you must pay for and complete a financial education course before your debts are discharged and file a certificate of completion with the court.
If you fail to complete the credit counseling course, it could disqualify you from filing for bankruptcy.
If you fail to complete the financial education course, the court may take this as a lack of commitment on your part that could impact its decision on whether to grant you bankruptcy protection.
Not all bankruptcy petitions result in completion of the bankruptcy process; the bankruptcy court can dismiss a bankruptcy case. If this happens, then a waiting period applies before you can petition again.
The duration of this waiting period depends on the type of bankruptcy case the court dismissed.
Depending on how much time has passed from the dismissal of a previous bankruptcy petition to the filing of a new one, this can affect how the bankruptcy automatic stay applies to you. The closer the two cases are, the less likely it is that automatic stay provisions limiting creditors from contacting you may apply. A motion to extend the automatic stay would be required if the previous filing is fairly recent. The court, at their discretion, will determine if the second case is filed in good faith.
Also, a bankruptcy dismissal will appear on your credit report, which can negatively impact your credit rating.
The best thing you can do to avoid problems with filing for bankruptcy after a prior dismissal is to work closely with an experienced bankruptcy attorney, who can reduce the chances of your initial petition being dismissed. If you are navigating a second bankruptcy filing shortly after a dismissed case, it is highly recommended to have an attorney’s representation.
Unfortunately, not everyone who resorts to bankruptcy protection does so with the best intentions. Sometimes, even people who do not have fraudulent intent can try to be a little too creative when calculating income, not reporting important information in their paperwork, or trying to keep assets outside of bankruptcy.
If discovered by the bankruptcy trustee or the bankruptcy judge, any of these and more can result in the dismissal of the bankruptcy petition.
Honesty is the best policy when it comes to disclosure in your bankruptcy petition and supporting documentation.
Making false statements to creditors or to the bankruptcy trustee, withholding financial records or providing misleading records like fraudulent tax returns, not disclosing a prior bankruptcy, concealing or making preferential transfers of nonexempt property, acquiring luxury items shortly before filing, or filing bankruptcy solely to avoid paying back one creditor are all grounds for dismissal of a bankruptcy case.
In more serious cases, fraud in the bankruptcy court can preclude the ability to file for bankruptcy again and lead to criminal charges.
If you need a fresh start financially, Chapter 7 bankruptcy or Chapter 13 bankruptcy may be right for you.
The best way to know if you are eligible for bankruptcy protection in Arizona is to talk with an experienced Phoenix bankruptcy attorney, like one you will find at Stone Rose Law. We can help you understand the bankruptcy process and make your bankruptcy filing if you elect to go with Chapter 7 or Chapter 13 bankruptcy.
To learn which bankruptcy chapter may be best for you and to begin filing, call us at (480) 739-2448 or use our contact form.
