Chapter 7 Bankruptcy Information: Your New Slate

From the beginning of America’s recent recession through the present day, there has been a lot of talk about debt and bankruptcy. Since it is perhaps the clearest way for debtors to get a clean slate and get on with their lives, there is a lot of Chapter 7 bankruptcy information that is helpful to know. Anyone in serious financial trouble, however, should definitely consider seeing a lawyer that specializes in bankruptcy law. That being said, what does Chapter 7 bankruptcy mean for debtors and who can apply for it?

Chapter 7 Bankruptcy is the complete liquidation of all property not subject to a list of State-determined or federally determined exemptions. This property is sold to reimburse, in part at least, the creditors that the debtor owes money to. There is no repayment plan under Chapter 7; the debts are simply discharged. Applying for this type of bankruptcy is the equivalent of a fresh start, debt-wise.

As for eligibility, any individual or business entity (including partnerships, corporations, and others) can apply for Chapter 7. Anyone filing for Chapter 7 must have applied for credit counseling at an approved agency (check with a lawyer or the agency itself) up to 180 days before filing. Also, if the debtor has failed to appear at their scheduled bankruptcy hearing or otherwise irked the court 180 days before filing for Chapter 7, they are disqualified. The amount owed to creditors isn’t taken into consideration by the courts, nor does the ability of the individual or business to pay debts at all factor inherently limit filing for this type of bankruptcy.

However, there are checks to make sure that people aren’t simply abusing the system to get out of paying their debts. The courts have what is called a means test to determine whether or not someone is filing a so-called abusive petition.

A means test will examine a debtor’s income and their expenses to determine whether the claim is abusive. The debtor’s average monthly income for the past five years is compared to the median amount for the state that they live in. If it is above that amount, the bankruptcy claim will be subject to the second test, which investigates the expenses of that debtor in comparison to the amount of unsecured debt that they own. So if those expenses exceed 25 percent of the debt not secured by collateral usually something like credit card debt then the court will either turn the case into a Chapter 13 filing or simply dismiss the whole thing.

A Chapter 13 claim is very different from a chapter 7 claim. Under Chapter 13, a debtor is placed under a five-year repayment plan to his creditors. The amount left over after that period is dismissed under Chapter 7, and no property is liquidated.

Since the exemptions to what is liquidated under Chapter 7 don’t include very much at all, those debtors wishing to keep the majority of the property that either has a lien on it or is the cause of debt would probably seek an alternative route to repayment. Likewise, Chapter 7 probably isn’t right for those who wish to keep their business going. Another alternative, of course, is coming up with a repayment plan outside of court and avoiding the fees of filing for bankruptcy.

Chapter 7 is currently designed to resist abuses and dishonesty, so debtors should make sure that they’re providing all the necessary personal information and are honestly qualified for that kind of debt relief. Chapter 7 bankruptcy information can help determine whether or not to pursue that solution to a financial crisis.

Anyone in serious financial difficulty must definitely consider seeing a lawyer that specializes in bankruptcy law. Find out more details about Chapter 7 Bankruptcy Information and who can apply for it?