Are you drowning in credit card debt? Are you constantly receiving phone calls requesting payment for past due medical bills? If your outstanding debt is putting a burden on your financial, physical, or mental well-being, it might be time to consider filing for Chapter 7 bankruptcy.
So, what are some of the basic guidelines for Chapter 7 bankruptcy that you need to know before filing?
We’ll answer the following questions to help you decide whether Chapter 7 is right for you:
• What is Chapter 7 bankruptcy?
• Who qualifies?
• Who does it benefit?
If you’re looking for a quick and simple way to free yourself from unsecured debt—credit cards, medical bills, and personal loans—keep reading!
What is Chapter 7 Personal Bankruptcy?
Chapter 7, also referred to as liquidation bankruptcy, is the most common type of bankruptcy for individuals—or couples—who financially cannot pay their debts. Chapter 7 essentially gives you a “fresh start” by discharging—or wiping out—your debts. If you receive a discharge, it relieves you from paying most of your pre-bankruptcy debts.
According to the Administrative Office of the U.S. Courts debts that are cannot be discharged include:
• Most Taxes
• Most Student Loans
• Domestic Support Payments
• Property Settlements
• Most Fines, Penalties, Forfeitures, and Criminal Restitution Obligations
• Certain Debts Not Listed in Your Bankruptcy Filing
If you have debt for any of the following reasons, you may be required to pay them as well:
• Fraud or Theft
• Fraud or Defalcation While Acting in Breach of Fiduciary Capacity
• Intentional Injuries That You Caused
• Death or Personal Injury Caused by Operating a Motor Vehicle, Vessel, or Aircraft While Intoxicated from Alcohol or Drugs
Since Chapter 7 does not require you to repay discharged debt, it’s important to know that the Bankruptcy Code allows a bankruptcy trustee to gather and sell your non-exempt assets. The proceeds are then used to pay your creditors. But, the Bankruptcy Codes allow you to keep certain exempt property. Exemptions fall under federal or state bankruptcy laws.
Who Qualifies for Chapter 7 Personal Bankruptcy?
While most people can apply for Chapter 7, you must meet several criteria to qualify for a discharge. You may be eligible for Chapter 7 bankruptcy if you:
• Have primarily consumer debts
• Have debts that total more than half of your annual income
• Would not be able to pay off your debt in less than five years
• Have little or no disposable income
• Your monthly income is below the median level for your state
• Have enough deductions after taking the Means Test
All individuals filing for Chapter 7 must file a Chapter 7 Statement of Your Current Monthly Income. This form determines whether your current monthly income is above or below the state median income.
If your income is below the state median, you do not have to complete the Means Test. However, if your income is above the state median, you will have to file the Chapter 7 Means Test Calculation form. This form deducts certain living expenses and payments such as tax debt, child support, and secured debt (mortgage or car loan).
If the results of the Means Test show that your income exceeds your state’s median income and family size, a U.S. trustee, bankruptcy administrator or your creditors can file a motion to dismiss your case.
Disabled veterans and individuals whose debt is primarily business debt may be exempt from passing the means test.
Who Does Chapter 7 Personal Bankruptcy Benefit?
Many individuals and couples find Chapter 7 bankruptcy beneficial. Chapter 7 works best for those who:
• Own Little Property
• Have Outstanding Credit Card Debt, Medical Bills or Personal Loans
• Have Income Below the State Median for Their Family Size
When you file for Chapter 7, you’ll be put into an “automatic stay,” which immediately stops most creditors from trying to make collections. This means that during the Chapter 7 bankruptcy process, creditors cannot garnish your wages, repossess your car, disconnect utility services, or foreclose on your home.
If you qualify for Chapter 7 and receive a discharge, you will be released from personal liability for most of your debts. Your creditors will not be able to take collections actions against you in the future.
According to the Administrative Office of the U.S. Courts, discharge orders are generally issued 60 to 90 days after the first meeting of creditors. In fact, individuals receive a discharge in more than 99% of Chapter 7 cases, excluding dismissed or converted cases.
Although Chapter 7 bankruptcy isn’t right for everyone, many individuals find relief after filing and receiving a discharge. If you’re drowning in debt, Chapter 7 might be the right solution for you!
If you are looking for a Bankruptcy Lawyer in Massachusetts, Hines Law can help. We are a full-service personal bankruptcy firm specializing in chapter 7 and chapter 13 filings with over 20 years’ experience. Call today for a Free Consultation!