Eligibility

• To be eligible for Chapter 7 bankruptcy protection, you must first pass a "means test." This test helps the court to determine whether you have the financial means to pay off your debts without the fresh start that Chapter 7 bankruptcy gives you. The first means test evaluates your income. If your income is less than the median income for a household with the same number family members in your state, you can qualify for Chapter 7 bankruptcy. If your income is higher than the median household income in your area, but your debt payments outpace your disposable income by a certain percentage (determined by your family size and where you live), you may also be eligible for Chapter 7.
  
  

Credit Counseling

• To file for Chapter 7 bankruptcy, you must first complete credit counseling through an agency approved by the Department of Justice's U.S. Trustee Program. The credit counseling program will provide you with education as well as budgeting assistance that may help you avoid bankruptcy altogether.
  
  

Liquidation

• In a Chapter 7 bankruptcy, you will usually be allowed to keep certain assets, such as your home, car and some cash. However, other items of value are subject to "liquidation" by the court trustee, who can sell the item and distribute the proceeds to your creditors.
  
  

Exceptions

• There are some debts that bankruptcy cannot discharge. Alimony and child support cannot be discharged in a bankruptcy. Government student loans can almost never be discharged by filing Chapter 7, unless you are completely disabled and unable to work. If your house is already in foreclosure, Chapter 7 bankruptcy usually can't stop your lender from taking your home.
  
  

Credit Consequences

• A bankruptcy can remain on your credit report for seven years. This can make getting credit difficult, at least for the next few years, and it may making getting rental housing difficult. It is illegal, however, for an employer to discriminate against an employee because of a bankruptcy on the employee's credit record.