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Each year, hundreds of thousands of Americans turn to bankruptcy as a last resort — a legal shield against crushing debt loads that can include high-rate credit card debt, mounting medical bills, or student and personal loan payments that have become impossible to manage. For many, it offers a genuine path forward.
But bankruptcy isn’t available to everyone. The process is governed by strict eligibility requirements, and filings that don’t meet them can be rejected — sometimes after applicants have already spent significant time and money pursuing that route. Many of these denials involve disqualifying factors that could have been spotted early on, and recent shifts in the legal landscape have only made the process more complicated to navigate.
If you’re considering filing for bankruptcy, knowing what could stand between you and approval is just as important as understanding the process itself. There are also alternatives worth exploring that may offer similar relief without the same hurdles. Here’s what to know before you decide which direction to take.
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What disqualifies you from filing for bankruptcy?
The two most common types of personal bankruptcy are Chapter 7 and Chapter 13, and each has distinct eligibility requirements and disqualifiers. Here are some of the factors that can disqualify you from filing for either type:
Failing the means test
For Chapter 7 bankruptcy, applicants must pass a means test to prove they lack sufficient disposable income to repay their debts. The means test compares your average monthly income over the past six months to the median income for a household of your size in your state. If your income exceeds the threshold, you may not qualify for Chapter 7 and might need to consider Chapter 13 instead.
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Recent bankruptcy discharges
The timing of your last bankruptcy directly impacts eligibility. For Chapter 7, you must wait eight years from a previous Chapter 7 discharge or six years from a Chapter 13 discharge. For Chapter 13, the waiting period is two years after a previous Chapter 13 discharge or four years following a Chapter 7 discharge.
Failure to complete mandatory credit counseling
Federal law requires the completion of a credit counseling course from an approved provider within 180 days before a bankruptcy filing. Skipping this requirement automatically disqualifies your application.
Fraudulent behavior
Bankruptcy courts are vigilant about ensuring the process is not abused. As a result, concealing assets, making fraudulent transfers within one year of filing, destroying financial records or lying on bankruptcy forms will typically disqualify your case and could potentially result in criminal charges.
Recent luxury purchases
Making major credit card charges for luxury items exceeding $725 within 90 days of filing, or cash advances exceeding $1,000 within 70 days of filing, are also presumed fraudulent and can disqualify your case.
Excessive income (for Chapter 13)
Chapter 13 bankruptcy requires debtors to have a regular income and adhere to repayment plans. However, if your income is too high relative to your debts, the court may determine that you’re not eligible to restructure your debts under this chapter.
What options do I have if I’m disqualified for bankruptcy?
If you don’t qualify for bankruptcy, there are alternative strategies that can help you manage or reduce your debt, including:
- Debt consolidation: Debt consolidation involves combining multiple debts into a single loan with a lower interest rate or more manageable payment terms. This can simplify payments and reduce overall costs.
- Debt settlement: In a debt settlement (also referred to as debt forgiveness), you negotiate with creditors to pay a lump sum that’s less than the total amount owed. While this can hurt your credit score, it may provide a quicker path to resolving outstanding debts and may lower your total balance by up to 50% on average.
- Debt management: When you enroll in a debt management program, you work with a credit counseling agency to consolidate payments and potentially reduce interest rates. These plans typically last between three and five years.
- Asset liquidation: You also have the option to sell valuable assets to pay down your debt. While this may require some sacrifices, it avoids bankruptcy’s long-term credit implications and legal restrictions.
The bottom line
While bankruptcy can provide a fresh start to those who are facing serious financial hardship, it’s important to understand that this type of relief is not available to everyone — and it comes with strict qualifying criteria designed to prevent abuse of the system. So, prior to filing, be sure to thoroughly review your eligibility, consider alternatives and consult with a bankruptcy attorney to evaluate your specific situation. If you’re disqualified, focus on alternative debt relief strategies that might better suit your circumstances instead.
