Chapter 7 Bankruptcy Laws - Quick Facts
When people think of bankruptcy, they
often mean Chapter 7, which is also commonly referred to as liquidation
or straight bankruptcy. If you file under Chapter 7, most of your
debts are wiped out, and if you have some non-exempt assets, they may
be divided up to pay your creditors. You will not have a
repayment plan. Your debts simply just go away! Chapter 7 is your best choice if:
- You don't have any or have very little money left over after you pay all your bills and expenses every month.
- Your income is less than your state's median income. (You may still pass the means test even if your income is over the median.)
- You have no or little assets to be liquidated by the trustee to pay to your creditors.
- You have not had an earlier bankruptcy case discharged within the last eight years.
Here are important facts about Chapter 7 Bankruptcy:
- Eligible Debts
- Chapter 7 bankruptcy laws eliminate most of your debts forever (even if you win the
lottery after your debts are discharged). Debts from the
following can be eliminated:
- Credit Cards
- Medical Bills
- You may have to surrender some of your non-exempt assets
to be liquidated to
raise funds to pay off your creditors. Most people who file under
a Chapter 7 will have little or no assets for creditors to take.
- Does not have a repayment plan (unlike Chapter 13)
- You must pass a Bankruptcy Chapter 7 Means Test
- Debts NOT Eligible for protection
under Chapter 7 Bankruptcy laws - Debts such as government student
loans, income taxes, alimony, and child support cannot be eliminated.
You are required to pay them back in ful
2005 Bankruptcy Reform Act (BARF)
Chapter 7 Bankruptcy Laws changed in 2005 when the Bankruptcy Reform
Act, also known as BARF, was passed. The most significant
addition is the Means
, which is basically a calculation to determine
whether you are really able to come up with money to pay your creditors and should be required to do so.Who is exempt from the Chapter 7 Means Test
- The means test does not apply
to you if you earn less than the median income in your state
However, many who earn more than the median income are still able
to pass the means test. Basically, if you are flat broke with
pennies left over every month to make payments on your debts, and
assuming you have retained a good attorney for good advice, you may be
able to pass the means test. It will require quite a bit of work
from you and your lawyer.Chapter 7 Bankruptcy Laws and Good Faith
- One thing to keep in mind is that some judges will also look at
whether you are acting in good faith. Some of the things they
- Did you make large and unnecessary purchases that you did not have the ability to pay right before filing for bankruptcy.
your filing necessary because of a life-changing event such as
unemployment, sudden serious medical condition, or other major setbacks
that have caused you to file for bankruptcy protection.
If you fail the Means
- Is your bankruptcy documentation and paperwork
accurate and complete? Do not make up numbers when filling up
your paperwork. You have to look up and include every single
source of income and every expense you have.
- You will have to file a Chapter 13 instead and
repay a portion of your debts over a 5-year period. You may
be able to convert to a Chapter 7 later down the line if you
are not able to make your plan payments under Chapter 13. Foreclosure and BankruptcyReturn From Chapter 7 Bankruptcy Laws To Foreclosure Help Center Homepage