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Chapter 7 Bankruptcy Information
Chapter 7 bankruptcy is also called liquidation bankruptcy, because it requires the debtor to liquidate their assets to pay off debts. There are certain exempt assets that are allowed and in some cases these assets vary from state to state. But in general, you are allowed to make exempt $20,000 in personal items. This could include a car, but you'll need to keep making payments. Items essential to your household are also considered exempt, such as furniture, appliances, electronics, and computers. Items under $1000 in value are often considered exempt because they are more of a burden to liquidate.
Chapter 7 bankruptcy may be a good choice if you have lost your income, or if you have excessive credit card or unsecured debt.
Chapter 7 bankruptcy offers filers a complete discharge of many of their unsecured debts, which are debts not tied to a property and include credit card debt, medical bills, payday loans, utility bills and some personal loans. As soon as your lawyer files your case with the court, the automatic stay takes effect. This stay prevents your creditors from taking any collection action against you.
In order to qualify for chapter 7 bankruptcy (sometimes referred to as “liquidation”), you’ll need to pass a qualifying means test. Like the credit counseling briefing, this test was introduced by BAPCPA. It requires complex calculations, so it may be a good idea to enlist the help of a bankruptcy lawyer.
The first step of the means test requires you to compare your household’s income to the median income of a family your size living in your state. (Your lawyer should have the latest income figures to help here.) If your income falls below the median, you qualify for chapter 7. If not, move on to the second step.
Step two is the Disposable Income Calculation, which is the tricky part. Consider your monthly income; after subtracting specific “allowable expenses” (outlined by the federal government), determine how much money remains. This is your disposable income. Generally, if your disposable income totals less than $100 per month ($6,000 over five years), you qualify. If it’s more than $10,000, you probably will not qualify. If it’s between $6,000 and $10,000, yet another calculation is required.
In the event you don't qualify for a chapter 7 bankruptcy, you may want to condier talking to your bankruptcy attorney about a chapter 13 bankruptcy.
"There are three steps to the means test. If you pass, you'll likely qualify to file for a chapter 7 bankruptcy." The final step, should you not qualify under the Median Income Comparison or the Disposable Income Calculation, is the Unsecured Debt/Disposable Income Comparison. This calculation requires you to compare your disposable income over the next five years to a portion of your unsecured debt.
The means test is meant to determine whether you have a reasonable chance of repaying a significant portion of what you owe. If your disposable income comes to more than a quarter (25 percent) of your unsecured debts, you’ll likely be shunted to Chapter 13 bankruptcy. If your disposable funds total less than 25 percent of this debt, you will probably “pass” the means test.
Filing for bankruptcy doesn't have to be scary, just make sure it's your best option before moving forward.
Chapter 7 Bankruptcy
Chapter 13 Bankruptcy
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